Insurance Case Digests Compilation SY 2017-2018 PDF

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INSURANCE CASE DIGEST COMPILATION SY 2017-2018 EH403 ATTY. KIM ARANAS

I. INTRODUCTION insolvent or otherwise unable to satisfy the claims against it. Thus, a single claimant may not
lay stake on the securities to the exclusion of all others. The other parties may have their own
1. REPUBLIC VS DEL MONTE GR 156956 (2006)
claims against the insurance company under other insurance contracts it has entered into.

Facts: The Insurance Code has vested the Office of the Insurance Commission with both regulatory
and adjudicatory authority over insurance matters. The general regulatory authority of the
On January 15, 2002, the RTC rendered a Decision in Civil Case No. Q-97-30412, finding the insurance commissioner is described in Section 414 of the Code.
defendants (Vilfran Liner, Inc., Hilaria Villegas and Maura Villegas) jointly and severally liable
to pay Del Monte Motors, Inc., P 11,835,375.50 representing the balance of Vilfran Liners Pursuant to these regulatory powers, the commissioner is authorized to (1) issue (or to refuse
service contracts with respondent. The trial court further ordered the execution of the to issue) certificates of authority to persons or entities desiring to engage in insurance
Decision against the counterbond posted by Vilfran Liner on June 10, 1997, and issued by business in the Philippines; (2) revoke or suspend these certificates of authority upon finding
Capital Insurance and Surety Co., Inc. (CISCO). On April 18, 2002, CISCO opposed the Motion grounds for the revocation or suspension; (3) impose upon insurance companies, their
for Execution filed by respondent, claiming that the latter had no record or document directors and/or officers and/or agents appropriate penalties — fines, suspension or removal
regarding the alleged issuance of the counterbond; thus, the bond was not valid and from office — for failing to comply with the Code or with any of the commissioners orders,
enforceable. instructions, regulations or rulings, or for otherwise conducting business in an unsafe or

unsound manner.
Issue:

As the officer vested with custody of the security deposit, the insurance commissioner is in
Whether or not the security deposit held by the Insurance Commissioner pursuant to Section the best position to determine if and when it may be released without prejudicing the rights
203 of the Insurance Code may be levied or garnished in favor of only one insured. of other policy holders. Before allowing the withdrawal or the release of the deposit, the
commissioner must be satisfied that the conditions contemplated by the law are met and all
Ruling: policyholders protected.

No. Section 203 of the Insurance Code provides as follows:
Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in value to
2. PHILIPPINE HEALTH CARE PROVIDERS, INC. GR 167330 (2009)
twenty-five per centum of the minimum paid-up capital required under section one hundred
eighty-eight, invest its funds only in securities, satisfactory to the Commissioner, consisting of
bonds or other evidences of debt of the Government of the Philippines or its political subdivisions “The main difference between an HMO and an insurance company is that HMOs undertake to
or instrumentalities, or of government-owned or controlled corporations and entities, including provide or arrange for the provision of medical services through participating physicians while
the Central Bank of the Philippines: Provided, That such investments shall at all times be insurance companies simply undertake to indemnify the insured for medical expenses incurred
maintained free from any lien or encumbrance; and Provided, further, That such securities shall up to a pre-agreed limit.”
be deposited with and held by the Commissioner for the faithful performance by the depositing
insurer of all its obligations under its insurance contracts. The provisions of section one hundred “The petitioner still will not qualify as an insurance contract because petitioner’s objective is to
ninety-two shall, so far as practicable, apply to the securities deposited under this section. provide medical services at reduced cost, not to distribute risk like an insurer.”

Except as otherwise provided in this Code, no judgment creditor or other claimant shall have Facts:
the right to levy upon any of the securities of the insurer held on deposit pursuant to the
requirement of the Commissioner. Petitioner is a domestic corporation. Its primary purpose is to establish, maintain, conduct
and operate a prepaid group practice health care delivery system or a health maintenance
Our Insurance Code is patterned after that of California. Thus, the ruling of the states Supreme organization to take care of the sick and disabled persons enrolled in the health care plan and
Court on a similar concept as that of the security deposit is instructive. Engwicht v. Pacific to provide for the administrative, legal, and financial responsibilities of the organization.
States Life Assurance Co. held that the money required to be deposited by a mutual Individuals enrolled in its health care programs pay an annual membership fee and are
assessment insurance company with the state treasurer was a trust fund to be ratably entitled to various preventive, diagnostic and curative medical services provided by its duly
distributed amongst all the claimants entitled to share in it. Such a distribution cannot be had licensed physicians, specialists and other professional technical staff participating in the
except in an action in the nature of a creditors bill, upon the hearing of which, and with all the group practice health delivery system at a hospital or clinic owned, operated or accredited by
parties interested in the fund before it, the court may make equitable distribution of the fund, it.
and appoint a receiver to carry that distribution into effect.
CIR sent petitioner a demand letter and the corresponding assessment notices demanding the
Basic is the statutory construction rule that provisions of a statute should be construed in payment of deficiency taxes, including surcharges and interest, for the taxable years 1996 and
accordance with the purpose for which it was enacted. That is, the securities are held as a 1997 in the total amount of P224,702,641.
contingency fund to answer for the claims against the insurance company by all its policy
holders and their beneficiaries. This step is taken in the event that the company becomes

2 INSURANCE CASE DIGESTS COMPILATION SY 2017-2018 EH403 ATTY. KIM ARANAS

The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s By the same token, any indemnification resulting from the payment for services rendered in
health care agreement with the members of its health care program pursuant to Section 185 case of emergency by non-participating health providers would still be incidental to
of the 1997 Tax Code. petitioner’s purpose of providing and arranging for health care services and does not
transform it into an insurer. To fulfill its obligations to its members under the agreements,
Issues: petitioner is required to set up a system and the facilities for the delivery of such medical
services. This indubitably shows that indemnification is not its sole object.
1. Whether or not petitioner is engaged in the insurance business.
2. Whether or not the health care agreement is an insurance agreement contemplated in As an HMO, it is its obligation to maintain the good health of its members. Accordingly, its
Section 185 in the NIRC health care programs are designed to prevent or to minimize thepossibility of any
assumption of risk on its part. Thus, its undertaking under its agreements is not to
Ruling: indemnify its members against any loss or damage arising from a medical condition but, on
the contrary, to provide the health and medical services needed to prevent such loss or
Health Maintenance Organizations Are Not Engaged In The Insurance Business damage.

Section 2 (2) of PD 1460 (otherwise known as the Insurance Code) enumerates what Overall, petitioner appears to provide insurance-type benefits to its members (with
constitutes "doing an insurance business" or "transacting an insurance business:" respect to its curative medical services), but these are incidental to the principal activity
a) making or proposing to make, as insurer, any insurance contract; of providing them medical care. The "insurance-like" aspect of petitioner’s business is
b) making or proposing to make, as surety, any contract of suretyship as a vocation and miniscule compared to its noninsurance activities. Therefore, since it substantially
not as merely incidental to any other legitimate business or activity of the surety; provides health care services rather than insurance services, it cannot be considered as
c) doing any kind of business, including a reinsurance business, specifically recognized being in the insurance business.
as constituting the doing of an insurance business within the meaning of this Code;
d) doing or proposing to do any business in substance equivalent to any of the Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is
foregoing in a manner designed to evade the provisions of this Code. evident from the fact that it is not supervised by the Insurance Commission but by the
Department of Health.
In the application of the provisions of this Code, the fact that no profit is derived from the
making of insurance contracts, agreements or transactions or that no separate or direct A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section
consideration is received therefore, shall not be deemed conclusive to show that the 185 Of The NIRC of 1997
making thereof does not constitute the doing or transacting of an insurance business.
We shall quote the pertinent portion of Section 185:
One test to determine whether or not one is doing an insurance business or HMO is to Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of
determine whether the assumption of risk and indemnification of loss (which are insurance or bonds or obligations of the nature of indemnity for loss, damage, or
elements of an insurance business) are the principal object and purpose of the liability made or renewed by any person, association or company or corporation transacting
organization or whether they are merely incidental to its business. If these are the the business of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar,
principal objectives, the business is that of insurance. But if they are merely incidental elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and
and service is the principal purpose, then the business is not insurance. fire insurance), xxxx (Emphasis supplied)

There is another and more compelling reason for holding that the service is not engaged in Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
the insurance business. Absence or presence of assumption of risk or peril is not the sole whereby one undertakes for a consideration to indemnify another against loss, damage
test to be applied in determining its status. The question, more broadly, is whether or liability arising from an unknown or contingent event. An insurance contract exists
‘service’ rather than ‘indemnity’ is its principal object and purpose. where the following elements concur:
1. The insured has an insurable interest;
The main difference between an HMO and an insurance company is that HMOs 2. The insured is subject to a risk of loss by the happening of the designed peril;
undertake to provide or arrange for the provision of medical services through 3. The insurer assumes the risk;
participating physicians while insurance companies simply undertake to indemnify the 4. Such assumption of risk is part of a general scheme to distribute actual losses among
insured for medical expenses incurred up to a pre-agreed limit. a large group of persons bearing a similar risk and
5. In consideration of the insurer’s promise, the insured pays a premium.
A participating provider of health care services is one who agrees in writing to render health
care services to or for persons covered by a contract issued by health service corporation in Do the agreements between petitioner and its members possess all these elements? They
return for which the health service corporation agrees to make payment directly to the do not.
participating provider.

3 INSURANCE CASE DIGEST COMPILATION SY 2017-2018 EH403 ATTY. KIM ARANAS

First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a 3. WHITE GOLD MARINE SERVICES VS PIONEER INSURANCE, ET AL. GR 154514
contract contains all the elements of an insurance contract, if its primary purpose is the (2005)
rendering of service, it is not a contract of insurance. It does not necessarily follow however,
that a contract containing all the four elements mentioned above would be an insurance Facts:
contract. The primary purpose of the parties in making the contract may negate the
existence of an insurance contract. White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage
for its vessels from The Steamship Mutual Underwriting Association Limited (Steamship
Second. Not all the necessary elements of a contract of insurance are present in petitioner’s Mutual) through Pioneer Insurance and Surety Corporation (Pioneer). Subsequently, White
agreements. To begin with, there is no loss, damage or liability on the part of the Gold was issued a Certificate of Entry and Acceptance. Pioneer also issued receipts evidencing
member that should be indemnified by petitioner as an HMO. Under the agreement, the payments for the coverage. When White Gold failed to fully pay its accounts, Steamship
member pays petitioner a predetermined consideration in exchange for the hospital, medical Mutual refused to renew the coverage.
and professional services rendered by the petitioner’s physician or affiliated physician to him.
In case of availment by a member of the benefits under the agreement, petitioner does not Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to
reimburse or indemnify the member as the latter does not pay any third party. Instead, it is recover the latter’s unpaid balance. White Gold on the other hand, filed a complaint before the
the petitioner who pays the participating physicians and other health care providers for the Insurance Commission claiming that Steamship Mutual violated Sections 186 and 187 of the
services rendered at pre-agreed rates. The member does not make any such payment. The Insurance Code, while Pioneer violated Sections 299, 300 and 301 in relation to Sections 302
terms "indemnify" or "indemnity" presuppose that a liability or claim has already been and 303, thereof.
incurred. There is no indemnity precisely because the member merely avails of medical
services to be paid or already paid in advance at a pre-agreed price under the agreements. The Insurance Commission dismissed the complaint. It said that there was no need for
Steamship Mutual to secure a license because it was not engaged in the insurance business. It
Third. According to the agreement, a member can take advantage of the bulk of the benefits explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club). Likewise,
anytime, e.g. laboratory services, x-ray, routine annual physical examination and Pioneer need not obtain another license as insurance agent and/or a broker for Steamship
consultations, vaccine administration as well as family planning counseling, even in the Mutual because Steamship Mutual was not engaged in the insurance business. Moreover,
absence of any peril, loss or damage on his or her part. Pioneer was already licensed, hence, a separate license solely as agent/broker of Steamship
Mutual was already superfluous.
Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives Issues:
care from a non-participating physician or hospital. The assumption of the expense by
petitioner is not confined to the happening of a contingency but includes incidents even in the 1. Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines?
absence of illness or injury. 2. Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?

Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true Ruling:
that risk alone is sufficient to establish it. Indeed, petitioner, as an HMO, undertakes a
business risk when it offers to provide health services: the risk that it might fail to earn a 1. YES. A P & I Club is a form of insurance against third party liability, where the third party
reasonable return on its investment. But it is not the risk of the type peculiar only to is anyone other than the P & I Club and the members. By definition then, Steamship Mutual as
insurance companies. Insurance risk, also known as actuarial risk, is the risk that the cost of a P & I Club is a mutual insurance association engaged in the marine insurance business.
insurance claims might be higher than the premiums paid. The amount of premium is
calculated on the basis of assumptions made relative to the insured. The test to determine if a contract is an insurance contract or not, depends on the nature of
the promise, the act required to be performed, and the exact nature of the agreement in the
However, assuming that petitioner’s commitment to provide medical services to its light of the occurrence, contingency, or circumstances under which the performance becomes
members can be construed as an acceptance of the risk that it will shell out more than requisite. It is not by what it is called.
the prepaid fees, it still will not qualify as an insurance contract because petitioner’s
objective is to provide medical services at reduced cost, not to distribute risk like an Relatedly, a mutual insurance company is a cooperative enterprise where the members are
insurer. both the insurer and insured. In it, the members all contribute, by a system of premiums or
assessments, to the creation of a fund from which all losses and liabilities are paid, and where
In sum, an examination of petitioner’s agreements with its members leads us to conclude that the profits are divided among themselves, in proportion to their interest. Additionally, mutual
it is not an insurance contract within the context of our Insurance Code. insurance associations, or clubs, provide three types of coverage, namely, protection and
indemnity, war risks, and defense costs.
WHEREFORE, the motion for reconsideration is GRANTED. SO ORDERED.
The records reveal Steamship Mutual is doing business in the country albeit without the

requisite certificate of authority mandated by Section 187 of the Insurance Code. It maintains

a resident agent in the Philippines to solicit insurance and to collect payments in its behalf.

We note that Steamship Mutual even renewed its P & I Club cover until it was cancelled due to


non-payment of the calls. Thus, to continue doing business here, Steamship Mutual or through appealed to the then Intermediate Appellate Court and in a decision promulgated on 31
its agent Pioneer, must secure a license from the Insurance Commission. March 1986, (CA-GR CV 02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate
court reversed for the following reasons: (a) there was no misrepresentation concerning the
Since a contract of insurance involves public interest, regulation by the State is necessary. lease for the contract was signed by Marcelo Garcia in the name of Roberto Garcia; and (b)
Thus, no insurer or insurance company is allowed to engage in the insurance business Paragraph 3 of the policy contract requiring Verendia to give notice to Fidelity of other
without a license or a certificate of authority from the Insurance Commission. contracts of insurance was waived by Fidelity as shown by its conduct in attempting to settle
the claim of Verendia. Fidelity received a copy of the appellate court's decision on 4 April
2. YES. Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of
1986, but instead of directly filing a motion for reconsideration within 15 days therefrom,
registration issued by the Insurance Commission. It has been licensed to do or transact Fidelity filed on 21 April 1986, a motion for extension of 3 days within which to file a motion
insurance business by virtue of the certificate of authority issued by the same agency. for reconsideration.

However, a Certification from the Commission states that Pioneer does not have a separate The motion for extension was not filed on 19 April 1986 which was the 15th day after receipt
license to be an agent/broker of Steamship Mutual. Although Pioneer is already licensed as an of the decision because said 15th day was a Saturday and of course, the following day was a
insurance company, it needs a separate license to act as insurance agent for Steamship Sunday. The motion for extension was granted by the appellate court on 30 April 1986, but
Mutual. Section 299 of the Insurance Code clearly states: Fidelity had in the meantime filed its motion for reconsideration on 24 April 1986. Verendia
filed a motion to expunge from the record Fidelity's motion for reconsideration on the ground
SEC. 299 . . . that the motion for extension was filed out of time because the 15th day from receipt of the
No person shall act as an insurance agent or as an insurance broker in the decision which fell on a Saturday was ignored by Fidelity, for indeed, so Verendia contended,
solicitation or procurement of applications for insurance, or receive for services the Intermediate Appellate Court has personnel receiving pleadings even on Saturdays. The
in obtaining insurance, any commission or other compensation from any motion to expunge was denied on 17 June 1986 and after a motion for reconsideration was
insurance company doing business in the Philippines or any agent thereof, similarly brushed aside on 22 July 1986, a petition (GR 75605) was initiated.
without first procuring a license so to act from the Commissioner, which must be
renewed annually on the first day of January, or within six months thereafter. . . Subsequently, or more specifically on 21 October 1986, the appellate court denied Fidelity's
motion for reconsideration and account thereof. Fidelity filed on 31 March 1986, the petition
for review on certiorari (GR 76399). The two petitions, inter-related as they are, were
4. VERENDIA VS CA 217 SCRA 417 consolidated and thereafter given due course.

Facts: Issue:

Fidelity and Surety Insurance Company of the Philippines issued its Fire Insurance Policy F- Whether Verandia forfeited all benefits due to his presentation of a false declaration to
18876 effective between 23 June 1980 and 23 June 1981 covering Rafael (Rex) Verendia's support his claim.
residential building located at Tulip Drive, Beverly Hills, Antipolo, Rizal in the amount of
P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings Bank. Verendia Ruling:
also insured the same building with two other companies, namely, The Country Bankers
Insurance for P56,000.00 under Policy No. PDB-80-1913 expiring on 12 May 1981, and The The contract of lease upon which Verendia relies to support his claim for insurance benefits,
Development Insurance for P400,000.00 under Policy F-48867 expiring on 30 June 1981. was entered into between him and one Robert Garcia, married to Helen Cawinian, on 25 June
While the three fire insurance policies were in force, the insured property was completely 1980, a couple of days after the effectivity of the insurance policy. When the rented residential
destroyed by fire on the early morning of 28 December 1980. Fidelity was accordingly building was razed to the ground on 28 December 1980, it appears that Robert Garcia (or
informed of the loss and despite demands, refused payment under its policy, thus prompting Roberto Garcia) was still within the premises. However, according to the investigation report
Verendia to file a complaint with the then Court of First Instance of Quezon City, praying for prepared by Pat. Eleuterio M. Buenviaje of the Antipolo police, the building appeared to have
payment of P385,000.00, legal interest thereon, plus attorney's fees and litigation expenses. "no occupant" and that Mr. Roberto Garcia was "renting on the otherside (sic) portion of said
compound.".
The complaint was later amended to include Monte de Piedad as an "unwilling defendant."
Answering the complaint, Fidelity, among other things, averred that the policy was avoided by These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo Garcia
reason of over-insurance, that Verendia maliciously represented that the building at the time whom he considered as the real lessee, was occupying the building when it was burned.
of the fire was leased under a contract executed on 25 June 1980 to a certain Roberto Garcia, Robert Garcia disappeared after the fire. It was only on 9 October 1981 that an adjuster was
when actually it was a Marcelo Garcia who was the lessee. On 24 May 1983, the trial court able to locate him. Robert Garcia then executed an affidavit before the National Intelligence
rendered a decision, per Judge Rodolfo A. Ortiz, ruling in favor of Fidelity. and Security Authority (NISA) to the effect that he was not the lessee of Verendia's house and
that his signature on the contract of lease was a complete forgery. Thus, on the strength of
In sustaining the defenses set up by Fidelity, the trial court ruled that Paragraph 3 of the these facts, the adjuster submitted a report dated 4 December 1981 recommending the denial
policy was also violated by Verendia in that the insured failed to inform Fidelity of his other of Verendia's claim.
insurance coverages with Country Bankers Insurance and Development Insurance. Verendia


According to the insurance policy:
Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the
lease contract. According to Verendia, it was signed by Marcelo Garcia cousin of Robert, who “xxx contained and/or stored during the currency of this Policy in the
had been paying the rentals all the while. Verendia, however, failed to explain why Marcelo premises occupied by them forming part of the buildings situate within own
had to sign his cousin's name when he in fact was paying for the rent and why Verendia compound.”
himself, the lessor, allowed such a ruse. Fidelity's conclusions on these proven facts appear,
therefore, to have sufficient bases: Verendia concocted the lease contract to deflect Issue: Is Rizal Surety liable considering the above stipulation in the insurance policy?
responsibility for the fire towards an alleged "lessee", inflated the value of the property by the
alleged monthly rental of P6,500 when in fact, the Provincial Assessor of Rizal had assessed Ruling:
the property's fair market value to be only P40,300.00, insured the same property with two
other insurance companies for a total coverage of around P900,000, and created a dead-end It can be gleaned unerringly that the fire insurance policy in question did not limit its
for the adjuster by the disappearance of Robert Garcia. Basically a contract of indemnity, an coverage to what were stored in the four-span building. The decision of the trial court and the
insurance contract is the law between the parties. Its terms and conditions constitute the CA are conclusive on the parties and not reviewable by the Supreme Court. Both the lower
measure of the insurer's liability and compliance therewith is a condition precedent to the courts found that the “annex” was not really an annex building but an integral and inseparable
insured's right to recovery from the insurer. part of the four-span building described in the policy.

As it is also a contract of adhesion, an insurance contract should be liberally construed in Also, considering that the two-storey building aforementioned was already existing when
favor of the insured and strictly against the insurer company which usually prepares it. subject fire insurance policy contract was entered, petitioner should have specifically
Considering, however, the foregoing discussion pointing to the fact that Verendia used a false excluded the said two-storey building from the coverage of the fire insurance if minded to
lease contract to support his claim under Fire Insurance Policy F-18876, the terms of the exclude the same but if did not, and instead, went on to provide that such fire insurance policy
policy should be strictly construed against the insured. Verendia failed to live by the terms of covers the products, raw materials and supplies stored within the premises of respondent
the policy, specifically Section 13 thereof which is expressed in terms that are clear and Transworld which was an integral part of the four-span building occupied by Transworld,
unambiguous, that all benefits under the policy shall be forfeited "if the claim be in any knowing fully well the existence of such building adjoining and intercommunicating with the
respect fraudulent, or if any false declaration be made or used in support thereof, or if any right section of the four-span building.
fraudulent means or devises are used by the Insured or anyone acting in his behalf to obtain
any benefit under the policy". Moreover, the stipulation as to the coverage of the fire insurance policy under controversy
has created a doubt regarding the portions of the building insured thereby. Article 1377 of the
Verendia, having presented a false declaration to support his claim for benefits in the form of New Civil Code states that:
a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of the
policy in the absence of proof that Fidelity waived such provision. Worse yet, by presenting a ART 1377. The interpretation of obscure words or stipulations in a contract shall not
false lease contract, Verendia reprehensibly disregarded the principle that insurance favor the party who caused the obscurity.”
contracts are uberrimae fidae and demand the most abundant good faith.
Thus, the doubt should be resolved against Rizal Surety Company. In the case of Fieldman’s
Insurance Company, Inc. vs Vda. De Songco:
5. RIZAL SURETY AND INSURANCE CO. VS CA 336 SCRA 12
"'This rigid application of the rule on ambiguities has become necessary in view of
Facts: current business practices. The courts cannot ignore that nowadays monopolies,
cartels and concentration of capital, endowed with overwhelming economic power,
Rizal Insurance issued a fire insurance worth One Million Pesos in favor of Transworld manage to impose upon parties dealing with them cunningly prepared 'agreements'
Knitting Mills but increased it to 1.5 Million Pesos. The same pieces of property insured with that the weaker party may not change one whit, his participation in the 'agreement'
the Rizal were also insured with New India Assurance Company. being reduced to the alternative to 'take it or leave it' labelled since Raymond
Saleilles 'contracts by adherence' (contrats [sic] d'adhesion), in contrast to these
A fire broke out in the compound of Transworld, razing the middle portion of its four-span entered into by parties bargaining on an equal footing, such contracts (of which
building and partly gutting the left and right sections thereof. A two-storey building behind it policies of insurance and international bills of lading are prime example) obviously
was also razed down by the fire. Transworld filed its claim but to no avail. call for greater strictness and vigilance on the part of courts of justice with a view to
protecting the weaker party from abuses and imposition, and prevent their becoming
Rizal claimed that the policy only covered damage on the four span building and not the two- traps for the unwary.”
storey building as it was not considered as an integral or main part of the building. However,
Tranworld argued that the so-called “annex” was not an annex but was actually an integral
part of the four-span building and therefore, the goods and items stored therein were covered
by the same fire insurance policy.


6. PHILAMCARE HEALTH SYSTEMS INC. VS CA 379 SCRA 356 7. FORTUNE INSURANCE AND SURETY CO., INC. VS CA 244 SCRA 308

Facts: Facts:

Ernani Trinos, deceased husband of respondent Julita Trinos, was issued a Health Care On June 29, 1987, Producer’s Bank of the Philippines’ armored vehicle was robbed, in transit,
Agreement for a health coverage with petitioner. During the period of his coverage, he of seven hundred twenty-five thousand pesos (Php 725,000.00) that it was transferring from
suffered a heart attack and was confined in the hospital. Respondent tried to claim the its branch in Pasay to its main branch in Makati. To mitigate their loss, they claim the amount
benefits under the health care agreement, but petitioner denied her claim. Thus, respondent from their insurer, namely Fortune Insurance and Surety Co.
paid the hospitalization expenses herself. According to petitioner, there was a concealment
regarding Ernani's medical history. Doctors at the MMC allegedly discovered at the time of Fortune Insurance, however, assails that the general exemption clause in the Casualty
Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his Insurance coverage had a general exemption clause, to wit: "GENERAL EXCEPTIONS
answer in the application form. In the standard application form, he answered NO to the The company shall not be liable under this policy in respect of xxx xxx xxx
question: Have you or any of your family members ever consulted or been treated for high (b)any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer,
blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, employee, partner, director, trustee or authorized representative of the Insured whether
give details). acting alone or in conjunction with others. . . . "

Respondent then filed with the RTC an action for damages against petitioner and its And, since the driver (Magalong) and security guard (Atiga) of the armored vehicle were
president, Dr. Benito Reverente. The court ruled in favor of Julita and awarded damages. On charged with three others as liable for the robbery, Fortune denies Producer’s Bank of its
appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for insurance claim. According to Fortune, when Producers commissioned a guard and a driver to
damages and absolved petitioner Reverente. Hence, petitioner brought the instant petition for transfer its funds from one branch to another, they effectively and necessarily became its
review, raising the primary argument that a health care agreement is not an insurance authorized representatives in the care and custody of the money. Assuming that they could
contract. IA not be considered authorized representatives, they were, nevertheless, employees of
Producers. Fortune insists that PRC Management System and Unicorn Security Services are
Issue: Whether or not a health care agreement is an insurance contract. but "labor-only" contractors under the Labor Code, and a finding that a contractor is a "labor-
only" contractor is equivalent to a finding that there is an employer-employee relationship
Ruling: between the owner of the project and the employee of the "labor-only" contractor.

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby Issue:
one undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event. An insurance contract exists where the Whether or not recovery is liable under the Money, Security, and Payroll Robbery policy or is
following elements concur: the recovery precluded under the general exemption clause.
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril; Ruling:
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large Yes, recovery is precluded under the general exemption clause. Even granting for the sake of
group of persons bearing a similar risk; and argument that these contracts were not "labor-only" contracts, and PRC Management Systems
5. In consideration of the insurer's promise, the insured pays a premium. The health care and Unicorn Security Services were truly independent contractors, we are satisfied that
agreement was in the nature of a non-life insurance, which is primarily a contract of Magalong and Atiga were, in respect of the transfer of Producer's money from its Pasay City
indemnity. branch to its head office in Makati, its "authorized representatives" who served as such with
its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or specific duty to safely transfer the money to its head office, with Alampay to be responsible
future, which may damnify a person having an insurable interest against him, may be insured for its custody in transit; Magalong to drive the armored vehicle which would carry the
against. Every person has an insurable interest in the life and health of himself. Section 10 money; and Atiga to provide the needed security for the money, the vehicle, and his two other
provides: companions. In short, for these particular tasks, the three acted as agents of Producers. A
Every person has an insurable interest in the life and health: "representative" is defined as one who represents or stands in the place of another; one who
(1) of himself, of his spouse and of his children; etc. represents others or another in a special capacity, as an agent, and is interchangeable with
"agent."
In the case at bar, the insurable interest of respondent's husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life Principles:
insurance, which is primarily a contract of indemnity. Burglary, Theft and Robbery Policy: A Casualty Insurance; Governing Principles— The
insurance policy entered into by the parties is a theft or robbery insurance policy which is a


form of casualty insurance. Except with respect to compulsory motor vehicle liability for a total of P45,159.92 premium. The breakdown of the premiums shows that Gulf paid only
insurance, the Insurance Code contains no other provisions applicable to casualty insurance P393.00 as premium against earthquake shock.
or to robbery insurance in particular. These contracts are, therefore, governed by the general
provisions applicable to all types of insurance. Outside of these, the rights and obligations of On July 16, 1990, an earthquake struck Central and Northern Luzon. The plaintiff’s properties
the parties must be determined by the terms of their contract, taking into consideration its including the two swimming pools were damage as a result of said earthquake. Thereafter,
purpose and always in accordance with the general principles of insurance law. petitioner advised respondent that it would be making a claim under its Insurance Policy No.
31944 for damages on its properties. Respondent instructed petitioner to file a formal claim.
General Exceptions; Service and Employment; Meaning thereof— It has been aptly observed
that in burglary, robbery and theft insurance, "the opportunity to defraud the insurer — the On August 11, 1990, petitioner filed its formal demand for settlement of the damage to all its.
moral hazard — is so great that insurers have found it necessary to fill up their policies with Respondent denied petitioner’s claim on the ground that its insurance policy only afforded
countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume earthquake shock coverage to the two swimming pools of the resort. Petitioner and
the risk of all losses due to the hazards insured against." Persons frequently excluded under respondent failed to arrive at a settlement. Hence, this case.
such provisions are those in the insured's service and employment. The purpose of the
exception is to guard against liability should the theft be committed by one having Issue:
unrestricted access to the property. In such cases, the terms specifying the excluded classes
are to be given their meaning as understood in common speech. The terms "service" and Whether or the policy covers only the two swimming pools and does not extend to all other
"employment" are generally associated with the idea of selection, control, and compensation. properties damaged by the earthquake.

Contract of Insurance as Contract of Adhesion; Interpretation thereof— A contract of Ruling:
insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the
insurer, or it should be construed liberally in favor of the insured and strictly against the Yes. It covers only the two swimming pools and does not extend to all other properties.
insurer. Limitations of liability should be regarded with extreme jealousy and must be From the inception of the policy, the petitioner had always required respondent to copy
construed in such a way as to preclude the insurer from non-compliance with its obligation. It verbatim the provisions and terms of its insurance policy with AHAC-AIU. But then, petitioner
goes without saying then that if the terms of the contract are clear and unambiguous, there is contended that pursuant to the rider, no qualifications were placed on the scope of the
no room for construction and such terms cannot be enlarged or diminished by judicial earthquake shock coverage. Thus, the policy extended earthquake shock coverage to all of the
construction. insured properties.

Contract of Insurance as Contract of Indemnity— An insurance contract is a contract of The SC said that it is basic that all the provisions of the insurance policy should be examined
indemnity upon the terms and conditions specified therein. It is settled that the terms of the and interpreted in consonance with each other. All its parts are reflective of the true intent of
policy constitute the measure of the insurer's liability. In the absence of statutory prohibition the parties. The policy cannot be construed piecemeal.
to the contract, insurance companies have the same rights as individuals to limit their liability
and to impose whatever conditions they deem best upon their obligations not inconsistent Therefore, all the provisions and riders, taken and interpreted together, indubitably
with public policy. show the intention of the parties to extend earthquake shock coverage to the two
swimming pools only.

8. GULF RESORTS INC. VS PHILIPPINES CAHRTER INSURANCE CORP. GR 155167 Also, the SC said that:
(2005) Section 2(1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage or
An insurance premium is the consideration paid an insurer for undertaking to indemnify the liability arising from an unknown or contingent event. Thus, an insurance contract exists
insured against a specified peril; and where the following elements concur:
It is basic that all the provisions of the insurance policy should be examined and interpreted in 1. The insured has an insurable interest;
consonance with each other. All its parts are reflective of the true intent of the parties. The policy 2. The insured is subject to a risk of loss by the happening of the designated peril;
cannot be construed piecemeal. 3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a
Facts: large group of persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a premium.
Petitioner, GULF RESORTS, INC., owner of the Plaza Resort, had its properties in said resort
insured originally with the American Home Assurance Company (AHAC-AIU). In the first four An insurance premium is the consideration paid an insurer for undertaking to indemnify the
policies issued, the risk of loss from earthquake shock was extended only to its two swimming insured against a specified peril. However, in the subject policy, no premium payments
pools. Later, it agreed to insure its properties with respondent, Philippine Charter, provided were made with regard to earthquake shock coverage, except on the two swimming
that the policy wording and rates in policy with AHAC-AIU be copied in the policy to be issued pools. There is no mention of any premium payable for the other resort properties with
by the former. It was for the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 regard to earthquake shock.


9. MANILA MAHOGANY VS CA 154 SCRA 650 10. FEDERAL EXPRESS CORPORATION VS AMERICAN HOME ASSURANCE COMPANY
AND PHIL-AM INSURANCE COMPANY, INC. GR 150094 (2004)
Facts:
Filing of notice to carrier in case of damage good is a condition precedent to filing a case for
Manila Mahogany Manufacturing Corporation insured its Mercedes Benz 4-door sedan with damages.
Zenith Insurance Corporation. The insured vehicle was bumped and damaged by a truck
owned by San Miguel Corporation. For the damage caused, respondent company paid Facts:
petitioner five thousand pesos (P5,000) in amicable settlement. Manila Mahogany’s general
manager executed a Release of Claim, subrogating respondent company to all its right to Beecham delivered to Burlington, an agent of Federal Express Corporation, a shipment of
action against San Miguel Corporation. Thereafter, respondent company wrote Insurance 109 cartons of veterinary biologicals for delivery to consignee SMITHKLINE in Metro
Adjusters, Inc. to demand reimbursement from San Miguel Corporation of the amount it had Manila. The shipment was covered by Burlington Airway Bill No. 11263825 with the words,
paid petitioner. Insurance Adjusters, Inc. refused reimbursement, alleging that San Miguel ‘REFRIGERATE WHEN NOT IN TRANSIT’ and ‘PERISHABLE’ stamp marked on its face. It was
Corporation had already paid petitioner P4,500 for the damages to petitioner's motor vehicle, insured by Burlington for S39,000 with American Home Assurance (AHAC). The cargo was
as evidenced by a cash voucher and a Release of Claim executed by the General Manager then turned over to Federal Express and was transported and delivered to Manila where it
of petitioner discharging San Miguel Corporation from "all actions, claims, demands the was stored at Cargohaus Inc Warehouse.
rights of action that now exist or hereafter develop arising out of or as a consequence of the
accident." Respondent insurance company thus demanded from petitioner reimbursement of Federal Express informed GETC, the customs broker hired by the consignee to facilitate the
the sum of P4,500 paid by San Miguel Corporation. Petitioner refused. release of its cargoes from the Bureau of Customs, of the impending arrival of its client’s
cargoes.
Issue:
Days after the cargo arrived, a non-licensed customs broker assigned by GETC found out
Whether the respondent insurance company is subrogated to the rights of the petitioner while checking the cargo that it was placed in a room with only 2 air cons instead of a
against San Miguel Corporation. refrigerated facility. When he inquired why this was so he was told that the cartons
specifically indicated that it should not be subjected to hot or cold temperature. Satisfied he
Ruling: merely took some samples of the vaccine and had it tested by the Bureau of Animal Industry.
It was found out that the vaccine had ELISA reading below the positife reference serum. In
Yes. Article 2207 of the New Civil Code provides that the insurer is deemed subrogated to the short it was not usable.
rights of the insured against the wrongdoer and if the amount paid by the insurer does not
fully cover the loss, then the aggrieved party is the one entitled to recover the deficiency. As a consequence SMITHKLINE abandoned the shipment, declaring total loss and file a claim
Under this legal provision, the real party in interest with regard to the portion of the against AHAC through PHILAM, its representative in the Philippines. PHILAM paid the whole
indemnity paid is the insurer and not the insured. 39,000 dollars. Philam and AHAC as insurers then filed a case for damages against either
Federal Express or SMITHKLINE imputing negligence on either or both of them in handling
Hence, petitioner is entitled to keep the sum of P4,500.00 paid by San Miguel Corporation the cargo.
under its clear right to file a deficiency claim for damages incurred, against the wrongdoer, Trial court held Federal as solidarily liable.
should the insurance company not fully pay for the injury caused (Article 2207, New Civil
Code). Issue: Is Federal Express liable for damage to or loss of the insured goods?

However, when petitioner released San Miguel Corporation from any liability, petitioner's Ruling:
right to retain the sum of P5,000 no longer existed, thereby entitling private respondent to
recover the same. The right of subrogation can only exist after the insurer has paid the PHILAM AND AHAC’S capacity to sue.
insured otherwise the insured will be deprived of his right to full indemnity. If the insurance When Sminthkline received the insurance proceeds it executed a subrogation receipt in favor
proceeds are not sufficient to cover the damages suffered by the insured, then he may sue the of PHILAM and AHAC. They were authorized to file claims and begin suit. In legal terms, it had
party responsible for the damage for the remainder. To the extent of the amount he has been subrogated to the rights of the injured party.
already received from, the insurer enjoys the right of subrogation.
In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To
Since the insurer can be subrogated to only such rights as the insured may have, should the all intents and purposes, it stands in the place and in substitution of the consignee. A fortiori,
insured, after receiving payment from the insurer, release the wrongdoer who caused the both the insurer and the consignee are bound by the contractual stipulations under the
loss, the insurer loses his rights against the latter. But in such a case, the insurer will be bill of lading.
entitled to recover from the insured whatever it has paid to the latter, unless the release was
made with the consent of the insurer.


Prescription of Claim 11. ETERNAL GARDENS MEMORIAL PARK CORPORATION VS PHIL. AMERICAN LIFE
The claim has prescribed. INSURANCE GR 166245 (2008)

SmithKline, Philam and Ahac never filed with the carrier any written notice or complaint Exception to Perfection (Insurance)
regarding its claim for damage of or loss to the subject cargo within the period required by
the Warsaw Convention and/or in the airway bill. Facts:

Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states: Respondent Philamlife entered into an agreement denominated as Creditor Group Life Policy
with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the
“6.No action shall be maintained in the case of damage to or partial loss of the shipment clients of Eternal who purchased burial lots from it on installment basis would be insured by
unless a written notice, sufficiently describing the goods concerned, the approximate date Philamlife. The amount of insurance coverage depended upon the existing balance of the
of the damage or loss, and the details of the claim, is presented by shipper or consignee to purchased burial lots. The insurance of any eligible Lot Purchaser shall be effective on the
an office of Burlington within (14) days from the date the goods are placed at the disposal date he contracts a loan with the Assured. However, there shall be no insurance if the
of the person entitled to delivery, or in the case of total loss (including non-delivery) unless application of the Lot Purchaser is not approved by the Company.
presented within (120) days from the date of issue of the [Airway Bill].” xx
“12./12.1The person entitled to delivery must make a complaint to the carrier in writing in
the case: Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers,
12.1.1 of visible damage to the goods, immediately after discovery of the damage and at the together with a copy of the application of each purchaser, and the amounts of the respective
latest within fourteen (14) days from receipt of the goods; unpaid balances of all insured lot purchasers. Eternal complied by submitting a letter dated
12.1.2 of other damage to the goods, within fourteen (14) days from the date of receipt of December 29, 1982, containing a list of insurable balances of its lot buyers for October 1982.
the goods; One of those included in the list as “new business” was a certain John Chuang. His balance of
12.2 For the purpose of 12.1 complaint in writing may be made to the carrier whose air payments was 100K. on August 2, 1984, Chuang died.
waybill was used, or to the first carrier or to the last carrier or to the carrier who performed
the transportation during which the loss, damage or delay took place.” Eternal sent a letter dated to Philamlife, which served as an insurance claim for Chuang’s
death. Attached to the claim were certain documents. In reply, Philamlife wrote Eternal a
Article 26 of the Warsaw Convention, on the other hand, provides: letter requiring Eternal to submit the additional documents relative to its insurance claim for
Chuang’s death. Eternal transmitted the required documents through a letter which was
“ART. 26.(1)Receipt by the person entitled to the delivery of baggage or goods without received by Philamlife.
complaint shall be prima facie evidence that the same have been delivered in good
condition and in accordance with the document of transportation. After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s
(2)In case of damage, the person entitled to delivery must complain to the carrier forthwith insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim
after the discovery of the damage, and, at the latest, within 3 days from the date of receipt in for PhP 100,000.
the case of baggage and 7 days from the date of receipt in the case of goods. In case of delay
the complaint must be made at the latest within 14 days from the date on which the In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter a
baggage or goods have been placed at his disposal. portion of which reads:
(4)Failing complaint within the times aforesaid, no action shall lie against the carrier, save The deceased was 59 years old when he entered into Contract #9558 and 9529 with
in the case of fraud on his part.” Eternal Gardens Memorial Park in October 1982 for the total maximum insurable amount
of P100,000.00 each. No application for Group Insurance was submitted in our office
In this case, the court ruled that the filing of a claim with the carrier within the time limitation prior to his death on August 2, 1984
is a condition precedent. This must be proven by whoever claims for damage. The reason for
such rule is to: Eternal filed a case with the RTC for a sum of money against Philamlife, which decided in
favor of Eternal, ordering Philamlife to pay the former 100K representing the proceeds of the
1. to inform the carrier that the cargo has been damaged, and that it is being charged with policy. CA reversed. Hence this petition.
liability therefor;
2. to give it an opportunity to examine the nature and extent of the injury. Issue: Whether or not Philamlife should pay the 100K insurance proceeds

Thus the case must be dismissed because the petitioner have no cause of action for not Ruling:
complying with the condition precedent.
Petition granted. YES
An examination of the provision of the POLICY under effective date of benefit, would show
ambiguity between its two sentences. The first sentence appears to state that the insurance
coverage of the clients of Eternal already became effective upon contracting a loan with


Eternal while the second sentence appears to require Philamlife to approve the insurance
contract before the same can become effective. Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28. It
issued an official receipt dated September 28, 1996, acknowledging the receipt of ₱55,620.60
It must be remembered that an insurance contract is a contract of adhesion which must be for the premium and other charges over the vehicle. The check issued to Trans-Pacific for
construed liberally in favor of the insured and strictly against the insurer in order to ₱140,893.50 was deposited with Metrobank for encashment on October 1, 1996.
safeguard the latter’s interest
On October 1, 1996, Pacquing informed petitioner of the vehicle's loss. Thereafter, petitioner
On the other hand, the seemingly conflicting provisions must be harmonized to mean that reported the loss and filed a claim with respondent for the insurance proceeds of
upon a party’s purchase of a memorial lot on installment from Eternal, an insurance contract ₱1,500,000.00. After investigation, respondent denied petitioner's claim on the ground that
covering the lot purchaser is created and the same is effective, valid, and binding until there was no insurance contract. Petitioner, through counsel, sent a final demand on July 7,
terminated by Philamlife by disapproving the insurance application. The second sentence of 1997. Respondent, however, refused to pay the insurance proceeds or return the premium
the Creditor Group Life Policy on the Effective Date of Benefit is in the nature of a resolutory paid on the vehicle.
condition which would lead to the cessation of the insurance contract. Moreover, the mere
inaction of the insurer on the insurance application must not work to prejudice the insured; it On October 9, 1997, petitioner filed a complaint for collection of sum of money and
cannot be interpreted as a termination of the insurance contract. The termination of the damages with the RTC where it sought to collect the insurance proceeds from respondent. In
insurance contract by the insurer must be explicit and unambiguous. its Answer, respondent asserted that the non-payment of the premium rendered the policy
ineffective. The premium was received by the respondent only on October 2, 1996, and there
was no known loss covered by the policy to which the payment could be applied.
II. CONTRACT OF INSURANCE
Issue: whether there is a binding insurance contract between petitioner and respondent.
12. GAISANO VS DEVELOPMENT INSURANCE AND SURETY CORP. GR 190702 (2017)

Ruling:
GENERAL RULE: No insurance contract takes effect unless premium is paid.
EXCEPTIONS: (1) Sec 77; (2) Sec 78; (3) where the parties agreed that premium payment shall No. Insurance is a contract whereby one undertakes for a consideration to indemnify another
be in installments and partial payment has been made at the time of loss; (4) where the insurer against loss, damage or liability arising from an unknown or contingent event.45 Just like any
granted the insured a credit term for the payment of the premium, and loss occurs before the other contract, it requires a cause or consideration. The consideration is the premium, which
expiration of the term; and (5) where the insurer is in estoppel as when it has consistently must be paid at the time and in the way and manner specified in the policy.46 If not so paid,
granted a 60 to 90-day credit term for the payment of premiums. the policy will lapse and be forfeited by its own terms.47

Facts: The law, however, limits the parties' autonomy as to when payment of premium may be made
for the contract to take effect. The general rule in insurance laws is that unless the premium is
Petitioner- registered owner of a 1992 Mitsubishi Montero paid, the insurance policy is not valid and binding.48 Section 77 of the Insurance Code,
Respondent- a domestic corporation engaged in the insurance business. applicable at the time of the issuance of the policy, provides:
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is
Respondent issued a comprehensive commercial vehicle policy to petitioner in the amount of exposed to the peril insured against. Notwithstanding any agreement to the contrary, no
₱1,500,000.00 over the vehicle for a period of one year. Respondent also issued two other policy or contract of insurance issued by an insurance company is valid and binding unless
commercial vehicle policies to petitioner covering two other motor vehicles for the same and until the premium thereof has been paid, except in the case of a life or an industrial life
period. policy whenever the grace period provision applies.

To collect the premiums and other charges on the policies, respondent's agent, Trans-Pacific In Tibay v. Court of Appeals,49 we emphasized the importance of this rule. We explained that in
Underwriters Agency (Trans-Pacific), issued a statement of account to petitioner's company, an insurance contract, both the insured and insurer undertake risks. On one hand, there is the
Noah's Ark Merchandising (Noah's Ark). Noah's Ark immediately processed the payments and insured, a member of a group exposed to a particular peril, who contributes premiums under
issued a Far East Bank check payable to Trans-Pacific on the same day. However, nobody the risk of receiving nothing in return in case the contingency does not happen; on the other,
from Trans-Pacific picked up the check that day (September 27) because its president and there is the insurer, who undertakes to pay the entire sum agreed upon in case the
general manager, Rolando Herradura, was celebrating his birthday. Trans-Pacific informed contingency happens. This risk-distributing mechanism operates under a system where, by
Noah's Ark that its messenger would get the check the next day, September 28. prompt payment of the premiums, the insurer is able to meet its legal obligation to maintain a
legal reserve fund needed to meet its contingent obligations to the public. The premium,
In the evening of September 27, 1996, while under the official custody of Noah's Ark therefore, is the elixir vitae or source of life of the insurance business. To ensure payment for
marketing manager Achilles Pacquing (Pacquing) as a service company vehicle, the vehicle these losses, the law mandates all insurance companies to maintain a legal reserve fund in
was stolen in the vicinity of SM Megamall. Pacquing reported the loss to the Philippine favor of those claiming under their policies.
National Police Traffic Management Command at Camp Crame in Quezon City. Despite search
and retrieval efforts, the vehicle was not recovered.


Here, there is no dispute that the check was delivered to and was accepted by respondent's nugatory the requirement in Section 77 that "[n]otwithstanding any agreement to the
agent, Trans-Pacific, only on September 28, 1996. No payment of premium had thus been contrary, no policy or contract of insurance issued by an insurance company is valid and
made at the time of the loss of the vehicle on September 27, 1996. While petitioner claims that binding unless and until the premium thereof has been paid, x x x." Moreover, the policy itself
Trans-Pacific was informed that the check was ready for pick-up on September 27, 1996, the states:
notice of the availability of the check, by itself, does not produce the effect of payment of the WHEREAS THE INSURED, by his corresponding proposal and declaration, and which shall be
premium. Trans-Pacific could not be considered in delay in accepting the check because when the basis of this Contract and deemed incorporated herein, has applied to the company for the
it informed petitioner that it will only be able to pick-up the check the next day, petitioner did insurance hereinafter contained, subject to the payment of the Premium as consideration for
not protest to this, but instead allowed Trans-Pacific to do so. such insurance.57(Emphasis supplied.)

Thus, at the time of loss, there was no payment of premium yet to make the insurance policy The policy states that the insured's application for the insurance is subject to the payment of
effective. the premium. There is no waiver of pre-payment, in full or in installment, of the premiums
under the policy. Consequently, respondent cannot be placed in estoppel.
There are, of course, exceptions to the rule that no insurance contract takes effect unless
premium is paid. Thus, we find that petitioner is not entitled to the insurance proceeds because no insurance
policy became effective for lack of premium payment.
In UCPB General Insurance Co., Inc., we summarized the exceptions as follows:
(1) in case of life or industrial life policy, whenever the grace period provision applies, as
expressly provided by Section 77 itself; 13. (REFER TO CASE #2) PHILIPPINE HEALTH CARE PROVIDERS, INC. VS CIR GR
(2) where the insurer acknowledged in the policy or contract of insurance itself the receipt of 167330 (2009)
premium, even if premium has not been actually paid, as expressly provided by Section 78

itself;
(3) where the parties agreed that premium payment shall be in installments and partial 14. NEW WORLD INTERNATIONAL DEV. (PHILS), INC. VS NYK-FILJAPAN SHIPPING
payment has been made at the time of loss, as held in Makati Tuscany Condominium Corp. v. CORP. GR 171468 (2011)
Court of Appeals;53
(4) where the insurer granted the insured a credit term for the payment of the premium, and In an all-risk policy, such a policy insured against all causes of conceivable loss or damage except
loss occurs before the expiration of the term, as held in Makati Tuscany Condominium when otherwise excluded or when the loss or damage was due to fraud or intentional
Corp.; and misconduct committed by the insured.
(5) where the insurer is in estoppel as when it has consistently granted a 60 to 90-day credit
term for the payment of premiums. Facts:

The insurance policy in question does not fall under the first to third exceptions laid out Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT
in UCPB General Insurance Co., Inc. Petitioner argues that his case falls under the fourth and Corporation (DMT) through its agent, Advatech Industries, Inc. (Advatech) three emergency
fifth exceptions because the parties intended the contract of insurance to be immediately generator sets worth US$721,500.00. DMT shipped the generator sets by truck from
effective upon issuance, despite non-payment of the premium. This waiver to a pre-payment Wisconsin, United States, to LEP Profit International, Inc. (LEP Profit) in Chicago, Illinois.
in full of the premium places respondent in estoppel.
From there, the shipment went by train to Oakland, California, where it was loaded on S/S
We do not agree with petitioner. California Luna V59, owned and operated by NYK Fil-Japan Shipping Corporation (NYK) for
The fourth and fifth exceptions to Section 77 operate under the facts obtaining in Makati delivery to petitioner New World in Manila. NYK issued a bill of lading, declaring that it
Tuscany Condominium Corp. and UCPB General Insurance Co., Inc. Both contemplate situations received the goods in good condition. NYK unloaded the shipment in Hong Kong and
where the insurers have consistently granted the insured a credit extension or term for the transshipped it to S/S ACX Ruby V/72 that it also owned and operated.
payment of the premium. Here, however, petitioner failed to establish the fact of a grant by
respondent of a credit term in his favor, or that the grant has been consistent. While there was On its journey to Manila, however, ACX Ruby encountered typhoon Kadiang whose captain
mention of a credit agreement between Trans-Pacific and respondent, such arrangement was filed a sea protest on arrival at the Manila South Harbor on October 5, 1993 respecting the
not proven and was internal between agent and principal.55 Under the principle of relativity of loss and damage that the goods on board his vessel suffered. Marina Port Services, Inc.
contracts, contracts bind the parties who entered into it. It cannot favor or prejudice a third (Marina), the Manila South Harbor arrastre or cargo-handling operator, received the
person, even if he is aware of the contract and has acted with knowledge.56 shipment on October 7, 1993. Upon inspection of the three container vans separately carrying
the generator sets, two vans bore signs of external damage while the third van appeared
We cannot sustain petitioner's claim that the parties agreed that the insurance contract is unscathed. An examination of the three generator sets in the presence of petitioner New
immediately effective upon issuance despite nonpayment of the premiums.Even if there is a World’s representatives, Federal Builders (the project contractor) and surveyors of petitioner
waiver of pre-payment of premiums, that in itself does not become an exception to Section New World’s insurer, Seaboard–Eastern Insurance Company (Seaboard), revealed that all
77, unless the insured clearly gave a credit term or extension. This is the clear import of the three sets suffered extensive damage and could no longer be repaired.
fourth exception in the UCPB General Insurance Co., Inc. To rule otherwise would render


New World demanded recompense for its loss from respondents NYK, DMT, Advatech, LEP 15. TRAVELLERS INSURANCE AND SURETY CORPORATION VS CA GR 82036 (1997)
Profit, LEP International Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK
acknowledged receipt of the demand, both denied liability for the loss. Since Seaboard The right of the person injured to sue the insurer of the party at fault (insured), depends on
covered the goods with a marine insurance policy, New World sent it a formal claim dated whether the contract of insurance is intended to benefit third persons also or on the insured. And
November 16, 1993. Replying on February 14, 1994, Seaboard required petitioner New World the test applied has been this: Where the contract provides for indemnity against liability to
to submit to it an itemized list of the damaged units, parts, and accessories, with third persons, then third persons to whom the insured is liable can sue the insurer.
corresponding values, for the processing of the claim. But petitioner New World did not Batas Pambansa (B.P.) Blg. 874, Section 384 provided as follows:
submit what was required of it, insisting that the insurance policy did not include the
submission of such a list in connection with an insurance claim. Reacting to this, Seaboard Notice of claim must be filed within six months from date of the accident, otherwise, the claim
refused to process the claim. On October 11, 1994 New World filed an action for specific shall he deemed waived.
performance and damages against all the respondents before the Regional Trial Court (RTC) Action or suit for recovery of damage due to loss or injury must be brought in proper cases,
of Makati City. with the Commission or the Courts within one year from date of accident, otherwise the
claimant's right of action shall prescribe.
Issue:
In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De Guzman
Whether CA erred in ruling that Seaboard’s request from petitioner New World for an One year prescription period to bring suit in court against the insurer should be counted from
itemized list is a reasonable imposition and did not violate the insurance contract between the time that the insurer rejects the written claim filed therewith by the insured, the
them; beneficiary or the third person interested under the insurance policy

Ruling: Facts:

YES. Itemized listing is not substantially necessary. The record shows that petitioner New At about 5:30 o'clock in the morning of July 20, 1980, a 78-year old woman by the name of
World complied with the documentary requirements evidencing damage to its generator sets. Feliza Vineza de Mendoza was on her way to hear mass at the Tayuman Cathedral. While
The marine open policy that Seaboard issued to New World was an all-risk policy. Such a walking along Tayuman corner Gregorio Perfecto Streets, she was bumped by a taxi that was
policy insured against all causes of conceivable loss or damage except when otherwise running fast.
excluded or when the loss or damage was due to fraud or intentional misconduct committed
by the insured. The policy covered all losses during the voyage whether or not arising from a Right away, the Good Samaritan that he was, Marvilla ran towards the old woman and held
marine peril. her on his lap to inquire from her what had happened, but obviously she was already in shock
and could not talk. At this moment, a private jeep stopped. With the driver of that vehicle, the
The policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in two helped board the old woman on the jeep and brought her to the Mary Johnston Hospital
voyage, or vessels unseaworthiness, among others. But Seaboard had been unable to show in Tondo.
that petitioner New World’s loss or damage fell within some or one of the enumerated
exceptions. Moreover, New World has submitted various documents, namely: Death was caused by 'traumatic shock' as a result of the severe injuries she sustained.
The trial court found as a fact that therein accused 'was driving the subject taxicab in a
(1) copy of the Supplier’s Invoice; careless, reckless and imprudent manner and at a speed greater than what was reasonable
(2) copy of the Packing List; and proper without taking the necessary precaution to avoid accident to persons. Moreover,
(3) copy of the Bill of Lading; the driver fled from the scene of the accident and without rendering assistance to the victim.
(4) the Delivery of Waybill Receipts 1135, 1222, and 1224;
(5) original copy of Marine Insurance Policy MA-HO-000266; During the investigation, defendant Armando Abellon, the registered owner of Lady Love Taxi
(6) copies of Damage Report from Supplier and Insurance Adjusters; bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact 'that the vehicle was driven last
(7) Consumption Report from the Customs Examiner; and July 20, 1980 by one Rodrigo Dumlao
(8) Copies of Received Formal Claim from the following:
a) LEP International Philippines, Inc.; Private respondent filed a complaint for damages against Armando Abellon as the owner of
b) Marina Port Services, Inc.; and the Lady Love Taxi and Rodrigo Dumlao as the driver of the Lady Love taxicab that bumped
c) Serbros Carrier Corporation. private respondent's mother. Subsequently, private respondent amended his complaint to
include petitioner as the compulsory insurer of the said taxicab under Certificate of Cover No.
Seaboard cannot pretend that the above documents are inadequate since they were precisely 1447785-3.
the documents listed in its insurance policy. Being a contract of adhesion, an insurance policy
is construed strongly against the insurer who prepared it. The Court cannot read a After trial, the trial court rendered judgment in favor of private respondent. The decision of
requirement in the policy that was not there. the trial court was affirmed by respondent appellate court.


Issue: the policy was issued at Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote to
Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer of the Manila office of the company stating that Herrer desired to withdraw his application. The
the Lady Love Taxi and that, assuming arguendo that it had indeed covered said taxicab for following day the local office replied that the policy had been issued. This letter was received
third-party liability insurance, private respondent failed to file a written notice of claim with by Mr. Torres on December 21, 1917. Mr. Herrer died on December 20, 1917.
petitioner as required by Section 384 of P.D. No. 612, otherwise known as the Insurance Code.
Issue: Whether Herrer received notice of acceptance of his application.
Ruling:
Defendant’s position:
Petition is meritorious. The local manager, Mr. White, testified to having received the cablegram accepting the
It is significant to point out at this juncture that the right of a third person to sue the insurer application of Mr. Herrer from the home office on November 26, 1917. He said that on the
depends on whether the contract of insurance is intended to benefit third persons also or only same day he signed a letter notifying Mr. Herrer of this acceptance.
the insured.
Plaintiff’s position:
The right of the person injured to sue the insurer of the party at fault (insured), depends on Attorney Manuel Torres testified to having prepared the will of Joaquin Ma. Herrer, that on
whether the contract of insurance is intended to benefit third persons also or on the insured. this occasion, Mr. Herrer mentioned his application for a life annuity, and that he said that the
And the test applied has been this: Where the contract provides for indemnity against liability only document relating to the transaction in his possession was the provisional receipt. Rafael
to third persons, then third persons to whom the insured is liable can sue the insurer. Enriquez, the administrator of the estate, testified that he had gone through the effects of the
deceased and had found no letter of notification from the insurance company to Mr. Herrer.
Where the contract is for indemnity against actual loss or payment, then third persons cannot
proceed against the insurer, the contract being solely to reimburse the insured for liability Ruling:
actually discharged by him thru payment to third persons, said third persons' recourse being
thus limited to the insured alone. The letter of November 26, 1917, notifying Mr. Herrer that his application had been accepted,
was prepared and signed in the local office of the insurance company, was placed in the
Apparently, the trial court did not distinguish between the private respondent's cause of ordinary channels for transmission, but as far as we know, was never actually mailed and thus
action against the owner and the driver of the Lady Love taxicab and his cause of action was never received by the applicant.
against petitioner. The former is based on torts and quasi-delicts while the latter is based on While the Insurance Act deals with life insurance, it is silent as to the methods to be followed
contract. in order that there may be a contract of insurance. On the other hand, the Civil Code may be
applied to supply any deficiency found in Insurance Act.
While it is true that where the insurance contract provides for indemnity against liability to Article 1262 of the Civil Code provides that "Consent is shown by the concurrence of offer and
third persons, such third persons can directly sue the insurer, however, the direct liability of acceptance with respect to the thing and the consideration which are to constitute the
the insurer under indemnity contracts against third-party liability does not mean that the contract. An acceptance made by letter shall not bind the person making the offer except from
insurer can be held solidarily liable with the insured and/or the other parties found at fault. the time it came to his knowledge. The contract, in such case, is presumed to have been
The liability of the insurer is based on contract; that of the insured is based on tort. entered into at the place where the offer was made."
The Civil Code rule, that an acceptance made by letter shall bind the person making the offer
Notice of claim must be filed within six months from date of the accident, otherwise, the claim only from the date it came to his knowledge, may not be the best expression of modern
shall he deemed waived. Instant petition is HEREBY GRANTED. commercial usage. Still it must be admitted that its enforcement avoids uncertainty and tends
to security. An acceptance of an offer of insurance not actually or constructively
communicated to the proposer does not make a contract. Only the mailing of acceptance, it
16. ENRIQUEZ VS SUN LIFE INSURANCE OF CANADA GR 15895 (1920) has been said, completes the contract of insurance, as the locus poenitentiae is ended when
the acceptance has passed beyond the control of the party. (I Joyce, The Law of Insurance, pp.
“An acceptance of an offer of insurance not actually or constructively communicated to the 235, 244.)
proposer does not make a contract. Only the mailing of acceptance, it has been said, completes
the contract of insurance, as the locus poenitentiae is ended when the acceptance has passed The second paragraph of article 1262 of the Civil Code provides that an acceptance made by
beyond the control of the party.” letter shall not bind the person making the offer except from the time it came to his
Facts: knowledge. The pertinent fact is, that according to the provisional receipt, three things had to
be accomplished by the insurance company before there was a contract: (1) There had to be a
Joaquin Herrer made application to the Sun Life Assurance Company of Canada through its medical examination of the applicant; (2) there had to be approval of the application by the
office in Manila for a life annuity. He paid the sum of P6,000 to the manager of the company's head office of the company; and (3) this approval had in some way to be communicated by the
Manila office and was issued a provisional receipt. company to the applicant. The further admitted facts are that the head office in Montreal did
accept the application, did cable the Manila office to that effect, did actually issue the policy
The application was immediately forwarded to the head office of the company at Montreal, and did, through its agent in Manila, actually write the letter of notification and place it in the
Canada. The head office gave notice of acceptance by cable to Manila. On December 4, 1917, usual channels for transmission to the addressee.


have been a completed contract, one that leaves nothing to be done, nothing to be completed,
We hold, however, that the contract for a life annuity in the case at bar was not perfected nothing to be passed upon, or determined, before it shall take effect. There can be no contract
because it has not been proved satisfactorily that the acceptance of the application ever came of insurance unless the minds of the parties have met in agreement.
to the knowledge of the applicant.
The failure of the insurance company's agent to communicate to the applicant the rejection of
the insurance application would not have any adverse effect on the allegedly perfected
17. GREAT PACIFIC LIFE ASSURANCE CO. VS CA GR 31845 & 31873 (1979) temporary contract. In the first place, there was no contract perfected between the parties
who had no meeting of their minds. Private respondent, being an authorized agent is
Facts: indubitably aware that said company does not offer the life insurance applied for. When he
filed the insurance application in dispute he was therefore only taking a chance that the
Ngo Hing, a duly authorized agent of Pacific Life, applied for a 20-year endowment policy on company will approve the recommendation of the agent for the acceptance and approval of
the life of his one-year old daughter, a mongoloid. He did not divulge each physical defect of the application in question. Secondly, having an insurable interest on the life of his daughter,
his daughter. He paid the premium and was issued a binding deposit receipt. However, aside from being an insurance agent and office associate of the branch, the applicant must
despite Lapulapu D. Mondragon’s (Branch Manager of the Pacific Life in Cebu City) favorable have known and followed the progress on the processing of such application and could not
recommendation, the Pacific life disapproved the application, because a 20-year endowment pretend ignorance of the Company's rejection of the 20-year endowment life insurance
plan is not available for minors. Instead, it offered the Juvenile Triple Action Plan. The application.
manager wrote back and again strongly recommended the approval of the application. At this
point, the child died of influenza with complication of broncho-pneumonia. 2. Yes, Ngo Hing concealed the state of health and physical condition of his child.
The contract of insurance is one of perfect good faith (uberrima fides meaning good faith;
In a suit filed by Ngo Hing to recover the proceeds of the insurance, the trial court rendered absolute and perfect candor or openness and honestly; the absence of any concealment or
judgment adverse to Pacific Life and Mondragon. The Court of Appeals in its amended deception, however slight [Black's Law Dictionary, 2nd Edition], not for the insured alone but
decision affirmed the trial court's decision in toto. equally so for the insurer. Concealment is a neglect to communicate that which a party knows
and ought to communicate (Section 25, Act 2427). Whether intentional or unintentional, the
Issues: concealment entitles the insurer to rescind the contract of insurance.

1. Whether the binding deposit receipt constituted a temporary contract of the life insurance? The failure of the father who applied for a life insurance policy on the life of his daughter to
2. Whether Ngo Hing concealed the state of health and physical condition of his child? divulge the fact that his daughter is a mongoloid, a congenital physical defect that could never
be disguised, constitutes such concealment as to render the policy void. And where the
Ruling: applicant himself is an insurance agent, he ought to know, as he surely must have known, his
duty and responsibility to supply such a material fact, and his failure to divulge such
1. Yes, the binding deposit receipt only constitutes a temporary contract of the life significant fact is deemed to have been done in bad faith.
insurance.
The Supreme Court held that a "binding receipt" does not insure by itself; that no insurance
contract was perfected between the parties with the non-compliance of the conditions III. PARTIES
provided in the binding receipt and concealment having been committed by private IV. INSURABLE INTEREST
respondent. 18. FELIPE VS MGM MOTOR TRADING CORPORATION GR 191849 (2015)

Where the binding deposit receipt is intended to be merely a provisional or temporary
Facts:
insurance contract, and that the receipt merely acknowledged, on behalf of the insurance

company, that the latter's branch office had received from the applicant the insurance
Felipe (complainant) claimed that he purchased on installment basis a Nissan Terrano Wagon
premium and had accepted the application subject for processing by the insurance company,
through MGM Motors. He allegedly paid P200, 000 down payment and P5,000 reservation fee.
such binding deposit receipt does not become in force until the application is approved.
He then insured the vehicle with Ayala Insurance and paid with premium of P40, 220.67. He

lost the subject vehicle while it was parked. He tried to claim from Ayala Insurance but the
A binding deposit receipt which is merely conditional does not insure outright. Thus, where
latter refused to pay. MGM Motors refused to produce the document of sale by installment
an agreement is made between the applicant and the agent, no liability will attack until the
despite repeated demands.
principal approves the risk and a receipt is given by the agent. The acceptance is merely

conditional, and is subordinated to the act of the company in approving or rejecting the
MGM: denied receiving down payment and reservation fee. It averred that it offered Felipe a
application.
discounted price if the latter will pay in cash. It delivered the vehicle but Felipe did not pay in

cash, hence, it did not give the registration papers. It alleged that Felipe was able to
A contract of insurance, like other contracts, must be assented to by both parties either in
fraudulently register the vehicle and insure the same. During the negotiation, Felipe's mother
person or by their agents. The contract, to be binding from the date of the application, must


agreed to settle the latter's obligation by issuing a post-dated check. It was later on bounced. GOYU filed a complaint for specific performance and damages. RCBC, one of GOYU's creditors,
To settle the civil aspect of BP 22, Felipe paid P200, 000. also filed with MICO its formal claim over the proceeds of the insurance policies, but said
claims were also denied for the same reasons that MICO denied GOYU's claims. However,
Ayala: There is no valid cause of action since there is no insurable interest because Felipe is because the endorsements do not bear the signature of any officer of GOYU, the trial court, as
not the owner of the subject vehicle. well as the Court of Appeals, concluded that the endorsements are defective and held that
RCBC has no right over the insurance proceeds.
During trial, presented the receipt of payment worth P200,000 and his father's testimony
alleging that he has with Felipe when the latter purchased the vehicle.
Issue: Whether or not RCBC has a right over the insurance proceeds.
RTC dismissed the case while CA upheld RTC's decision.
Ruling:
Issue: Whether or not there is insurable interest that would render Ayala Insurance liable.
RCBC has a right over the insurance proceeds.
Ruling:
It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests
NO, the insurable interest was not sufficiently proven by Felipe. in the same mortgaged property, such that each one of them may insure the same property
for his own sole benefit. There is no question that GOYU could insure the mortgaged property
Felipe failed to assert and establish the following proof: (1) premium payment; (2)that the for its own exclusive benefit. In the present case, although it appears that GOYU obtained the
insurable interest existed at the time of loss; (3)deed of sale; (4) proximate cause of the loss is subject insurance policies naming itself as the sole payee, the intentions of the parties as
one of the perils insured against; (5) existence of the original insurance policy. shown by their contemporaneous acts, must be given due consideration in order to better
serve the interest of justice and equity.
Felipe has the burden of proof to show that a loss occurred and was covered by his insurance
policy. Considering that of all the pieces of evidence admitted by the trial court, none would It is to be noted that 9 endorsement documents were prepared by Alchester in favor of RCBC.
tend to proveloss of the subject car and coverage thereof under the insurance policy. The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific
insurance policy in favor of any particular beneficiary or payee other than the insured had not
such named payee or beneficiary been specifically disclosed by the insured itself. It is also
significant that GOYU voluntarily and purposely took the insurance policies from MICO, a
19. RCBC VS CA 298 SCRA 292
sister company of RCBC, and not just from any other insurance company. Alchester would not
have found out that the subject pieces of property were mortgaged to RCBC had not such
Facts: information been voluntarily disclosed by GOYU itself. Had it not been for GOYU, Alchester
would not have known of GOYU's intention of obtaining insurance coverage in compliance
Goyu & Sons, Inc (GOYU) applied for credit facilities and accommodations with RCBC. After with its undertaking in the mortgage contracts with RCBC, and verify, Alchester would not
due evaluation, a credit facility in the amount of P30 million was initially granted. Upon have endorsed the policies to RCBC had it not been so directed by GOYU.
GOYU's application increased GOYU's credit facility to P50 million, then to P90 million, and
finally to P117 million On equitable principles, particularly on the ground of estoppel, the Court is constrained to
rule in favor of mortgagor RCBC. RCBC, in good faith, relied upon the endorsement documents
As security for its credit facilities with RCBC, GOYU executed two real estate mortgage (REM) sent to it as this was only pursuant to the stipulation in the mortgage contracts. We find such
and two chattel mortgage (CM) in favor of RCBC, which were registered with the Registry of reliance to be justified under the circumstances of the case. GOYU failed to seasonably
Deeds at. Under each of these four mortgage contracts, GOYU committed itself to insure the repudiate the authority of the person or persons who prepared such endorsements. Over and
mortgaged property with an insurance company approved by RCBC, and subsequently, to above this, GOYU continued, in the meantime, to enjoy the benefits of the credit facilities
endorse and deliver the insurance policies to RCBC. extended to it by RCBC. After the occurrence of the loss insured against, it was too late for
GOYU to disown the endorsements for any imagined or contrived lack of authority of
GOYU obtained in its name a total of 10 insurance policies from Malayan Insurance Company, Alchester to prepare and issue said endorsements. If there had not been actually an implied
Inc. (MICO). In February 1992, Alchester Insurance Agency, Inc., the insurance agent where ratification of said endorsements by virtue of GOYU's inaction in this case, GOYU is at the very
GOYU obtained the Malayan insurance policies, issued nine endorsements in favor of RCBC least estopped from assailing their operative effects.
seemingly upon instructions of GOYU.
To permit GOYU to capitalize on its non-confirmation of these endorsements while it
On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire. continued to enjoy the benefits of the credit facilities of RCBC which believed in good faith
Consequently, GOYU submitted its claim for indemnity. MICO denied the claim on the ground that there was due endorsement pursuant to their mortgage contracts, is to countenance
that the insurance policies were either attached pursuant to writs of grave contravention of public policy, fair dealing, good faith, and justice. Such an unjust
attachments/garnishments issued by various courts or that the insurance proceeds were also situation, the Court cannot sanction. Under the peculiar circumstances obtaining in this case,
claimed by other creditors of GOYU alleging better rights to the proceeds than the insured. the Court is bound to recognize RCBC's right to the proceeds of the insurance policies if not


for the actual endorsement of the policies, at least on the basis of the equitable principle of coverage on “book debts in connection with ready-made clothing materials which have been
estoppel. sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines”. The policies defined book debts as the “unpaid account still appearing in the
GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the Book of Account of the Insured 45 days after the time of the loss covered under this Policy”.
proceeds of insurance shall exclusively apply to the interest of the person in whose name or
for whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case On February 25, 1991, the Gaisano Superstore Complex in Cagayan De Oro, owned by
presents a justification to take exception to the strict application of said provision, it having petitioner, was consumed by fire. Having fire insurance, IMC and LSPI filed with respondent
been sufficiently established that it was the intention of the parties to designate RCBC as the claims under their insurance policies. Respondent, being subrogated to the rights of IMC and
party for whose benefit the insurance policies were taken out. Consider thus the following: LSPI, demanded payments upon petitioner but was unheeded. So respondent filed a collection
of sum of money in the RTC. Petitioner argued that they can’t be liable since the properties
1. It is undisputed that the insured pieces of property were the subject of mortgage covered by the insurance were destroyed due to fortuitous event.
contracts entered into between RCBC and GOYU in consideration of and for securing GOYU's
credit facilities from RCBC. The mortgage contracts contained common provisions whereby RTC: dismissed the complaint and favored the petitioner by holding that the fire was purely
GOYU, as mortgagor, undertook to have the mortgaged property properly covered against any accidental and that the cause of the fire was not attributable to the negligence of the
loss by an insurance company acceptable to RCBC. petitioner.
2. GOYU voluntarily procured insurance policies to cover the mortgaged property from
MICO, no less than a sister company of RCBC and definitely an acceptable insurance company CA: On appeal, the decision was reversed. CA favored the respondent and awarded amounts
to RCBC. P2,119,205.60 for ICM and P535,613 for LSPI that claimed by the respondent.

3. Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Petitioner questioned the CA’s ruling that CA erred in construing a fire insurance policy on
Agency, Inc., and copies thereof were sent to GOYU, MICO and RCBC. GOYU did not assail, until book debts as one covering the unpaid accounts of IMC and LSPI since such insurance applies
of late, the validity of said endorsements. to loss of the ready-made clothing materials sold and delivered to petitioner. Hence the
petition.
4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit
facilities extended by RCBC which was conditioned upon the endorsement of the insurance Issues:
policies to be taken by GOYU to cover the mortgaged properties.
1. Whether the insurable interest is the goods or the unpaid accounts.
This Court cannot over stress the fact that upon receiving its copies of the endorsement 2. Whether respondent can claim against petitioner.
documents prepared by Alchester, GOYU, despite the absence written conformity thereto, 3. How much can respondent claim from petitioner?
obviously considered said endorsement to be sufficient compliance with its obligation under
the mortgage contracts since RCBC accordingly continued to extend the benefits of its credit Ruling:
facilities and GOYU continued to benefit therefrom. Just as plain too is the intention of the
parties to constitute RCBC as the beneficiary of the various insurance policies obtained by 1. Unpaid Accounts. An insurable interest in property does not necessarily imply a property
GOYU. The intention of the parties will have to be given full force and effect in this particular interest in, or a lien upon, or possession of, the subject matter of the insurance, and neither
case. The insurance proceeds may, therefore, be exclusively applied to RCBC, which under the the title nor a beneficial interest is requisite to the existence of such an interest, it is sufficient
factual circumstances of the case, is truly the person or entity for whose benefit the policies that the insured is so situated with reference to the property that he would be liable to loss
were clearly intended. should it be injured or destroyed by the peril against which it is insured. Anyone has an
insurable interest in property who derives a benefit from its existence or would suffer loss
from its destruction. Indeed, a vendor or seller retains an insurable interest in the property
20. GAISANO CAGAYAN, INC. VS INSURANCE COMPANY OF NORTH AMERICA GR sold so long as he has any interest therein, in other words, so long as he would suffer by its
147839 (2006) destruction, as where he has a vendor’s lien. In this case, the insurable interest of IMC and
LSPI pertain to the unpaid accounts appearing in their books of Account 45 days after the
Anyone has an insurable interest in property who derives a benefit from its existence or would time of the loss covered by the policies.
suffer loss from its destruction.
2. Yes. Having subrogated from the rights of IMC and LSPI, petitioner can claim. What is
Facts: insured in here is not the goods but the unpaid accounts. Unpaid accounts being a generic
obligation cannot be extinguished by fortuitous events unlike in a delivery of particular thing.
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss This rule is based on the principle of genus nunquan perit.
(Phils.) Inc. (LSPI) is the local distributor of products bearing trademark owned by Levi
Strauss & Co. IMC and LSPI both obtained fire insurance policies with book debt 3. Only the P2,119,205 of IMC since it was properly documents unlike the P535,613 of LSPI.
endorsements from Insurance Company of North America. The insurance policies provide for


21. HEIRS OF LORETO C. MARAMAG REPRESENTED BY SURVIVING SPOUSE VICENTE Third parties to an insurance contract are NOT entitled to its proceeds as a general
PANGILINAN MARAMAG VS EVA VERNA DE GUZMAN MARAMAG, ET AL. GR 181132 rule.
(2009) SECTION 53, Insurance Code. The insurance proceeds shall be applied exclusively
to the proper interest of the person in whose name or for whose benefit it is made
Facts: unless otherwise specified in the policy.

Petitioners (heirs of Loreto) were the legitimate wife and children of Loreto Maramag. General Rule: Persons entitled to claim the insurance proceeds:
Respondents were Loreto’s illegitimate family. The insured, if still alive;
The beneficiary, if the insured is already deceased, upon the maturation of the policy.
Eva Maramag – concubine of Loreto and suspect in his killing
Odessa, Karl Brian, and Trisha Angelie – illegitimate children of Loreto with Eva Exception: Where the insurance contract was intended to benefit third persons who are not
parties to the same in the form of favorable stipulations or indemnity. This is the only instance
Loreto misrepresented Eva as his legitimate wife, and Odessa, Karl Brian and Trisha Angelie where a third party may sue and claim from the insurer.
as his legitimate children, and named them as beneficiaries of his insurance policies from
Insular Life (Insular) and Great Pacific Life Assurance Corporation (Grepalife). Loreto died. Forfeited shares are awarded to the other designated beneficiaries, NOT the estate of
The illegitimate family filed their claims for the insurance proceeds. the insured.
The shares of Eva in the insurance proceeds must be awarded to the illegitimate
When Insular ascertained that Eva was not the legal wife of Loreto, it disqualified her as a children, being designated beneficiaries.
beneficiary and divided the proceeds among the three children, as the remaining designated
beneficiaries. Insular, then, released Odessa’s share as she was of age, but withheld the NOTE: The law does not prohibit the designation of illegitimate children as beneficiaries.
release of the shares of minors Karl Brian and Trisha Angelie pending submission of letters of Instances when insurance proceeds redound to the benefit of the estate of the
guardianship. insured:

Heirs of Loreto filed a complaint for revocation and/or reduction of said insurance proceeds Where the insured has not designated any beneficiary;
for being void and/or inofficious. When the only designated beneficiary is disqualified by law to receive the proceeds.

Insular’s contentions:
As to Eva - the complaint failed to state a cause of action because Loreto previously revoked 22. VIOLETA LALICAN VS THE INSUALR LIFE ASSURANCE COMPANY, LTD. GR 183526
Eva’s designation in one policy, and Insular itself disqualified Eva in the another policy. (2009)
As to the three children – Insular is bound to honor the insurance policies designating the
children of Loreto with Eva as beneficiaries pursuant to Section 53 of the Insurance Code. Facts:

Grepalife contentions: Eulogio Lalican applied for an insurance policy with the Insular Life amounting to Php
As to Eva – not designated as a beneficiary. 1,500,000. Under the terms of the policy, Eulogio was to pay the premiums on a quarterly
As to the three children – their claims were denied because Loreto was ineligible for basis, having a grace period of 31 days, for the payment of each premium subsequent to the
insurance due to a misrepresentation in his application form that he was born on December first. If any premium was not paid on or before the due date, the policy would be in default
10, 1936 and, thus, not more than 65 years old when he signed it in September 2001. and if the premium remained unpaid until the end of the grace period, the policy would
automatically lapse and become void.
Premiums paid had already been refunded.
The law on succession does not apply where the designation of insurance beneficiaries is Eulogio paid the premiums due on the first two succeeding payment dates but failed to pay
clear. subsequent premiums even after the lapse of the grace period thereby rendering the policy
void. He submitted an application for reinstatement of policy through Josephine Malaluan, an
Issue: agent of Insular Life, together with the payment of the unpaid premiums. However, the
W/N the legitimate family is entitled to the proceeds of the insurance for the concubine? Insular Life notified him that his application could not be processed because he failed to pay
the overdue interest of the unpaid premiums.
Ruling:
On Sept. 17, 1998, Eulogio submitted to Malaluan's house a second application for
NO. Insurance Code applies; NOT the law on succession under the Civil Code. reinstatement including the payment for the overdue interest as well as for the premiums due
Article 2011 of the Civil Code expressly provides that insurance contracts shall be governed for April and July of that year, which was received by Malaluan's husband on her behalf and
by special laws. was thereby issued a receipt for the amount Eulogio deposited. However, on that same day,
Eulogio died of cardio-respiratory arrest secondary to electrocution.


Violeta, Eulogio's widow filed with the Insular Life a claim for payment of the full proceeds of
the policy but the latter informed her that the claim could not be granted since at the time of Ruling:
Eulogio's death, his policy has already lapsed and he failed to reinstate the same. Violeta
requested a reconsideration of her claim but the same was also rejected. YES. While we affirm that the subject lease agreement is a contract of adhesion, such a
contract is not void per se. It is as binding as any ordinary contract. A party who enters into an
Therefore, she filed a complaint for death claim benefits with the RTC alleging the unfair claim adhesion contract is free to reject the stipulations entirely. If the terms thereof are accepted
settlement practice of Insular Life and its deliberate failure to act with reasonable promptness without objection, then the contract serves as the law between the parties.
on her insurance claim. The trial court rendered a decision in favour of Insular Life and after
the former denied her motion for reconsideration, she directly elevated her case to the The Lease Contract with corresponding Lease Schedules with Delivery and Acceptance
Supreme Court via the petition for review on Certiorari. Certificates is, in point of fact, a financial lease within the purview of R.A. No. 8556. Section 3
(d) thereof defines "financial leasing" as:
Issue: Whether or not the policy of Eulogio was reinstated before his death.
[A] mode of extending credit through a non-cancelable lease contract under which the lessor
Ruling: purchases or acquires, at the instance of the lessee, machinery, equipment, motor vehicles,
Petition lacks merit. appliances, business and office machines, and other movable or immovable property in
consideration of the periodic payment by the lessee of a fixed amount of money sufficient to
RTC's decision has long acquired finality for Violeta failed to file a notice of appeal more than amortize at least seventy (70%) of the purchase price or acquisition cost, including any
five months after the decision was rendered. incidental expenses and a margin of profit over an obligatory period of not less than two (2)
years during which the lessee has the right to hold and use the leased property with the right
As to the substantial claim of whether there is insurable interest, the Court says that the to expense the lease rentals paid to the lessor and bears the cost of repairs, maintenance,
matter of insurable interest is entirely irrelevant and the real point of contention herein is insurance and preservation thereof, but with no obligation or option on his part to purchase
whether Eulogio was able to reinstate the lapsed insurance policy on his life before his death. the leased property from the owner-lessor at the end of the lease contract.
The Court rules in the negative, for the insurance policy is clear on the procedure of the
reinstatement of the insurance contract, of which Eulogio has failed to accomplish before his FEB leased the subject equipment and motor vehicles to JVL in consideration of a monthly
death. As provided by the policy, insurance shall be deemed reinstated upon the approval of periodic payment of P170,494.00. The periodic payment by petitioner is sufficient to
the insurance policy of the application for reinstatement. The approval should be made amortize at least 70% of the purchase price or acquisition cost of the said movables in
during the lifetime of the insured, in the case at bar, it wasn’t. accordance with the Lease Schedules with Delivery and Acceptance Certificates. JVL entered
into the lease contract with full knowledge of its terms and conditions. Lim, as a lessee, has an
insurable interest in the equipment and motor vehicles leased. In the financial lease
23. SING VS FEB LEASING AND FINANCE CORPORATION GR 168115 (2007) agreement, FEB did not assume responsibility as to the quality, merchantability, or capacity of
the equipment. This stipulation provides that, in case of defect of any kind that will be found
Facts: by the lessee in any of the equipment, recourse should be made to the manufacturer. “The
financial lessor, being a financing company, i.e., an extender of credit rather than an ordinary
FEB Leasing and Finance Corporation (FEB) leased equipment and motor vehicles to JVL Food equipment rental company, does not extend a warranty of the fitness of the equipment for
Products with a monthly rental of P170,494. At the same date, Vicente Ong Lim Sing, Jr. (Lim) any particular use. Thus, the financial lessee was precisely in a position to enforce such
an executed an Individual Guaranty Agreement with FEB to guarantee the prompt and faithful warranty directly against the supplier of the equipment and not against the financial
performance of the terms and conditions of the lease agreement. JVL defaulted in the payment lessor. We find nothing contra legem or contrary to public policy in such a contractual
of the monthly rentals resulting to arrears of P3,414,468.75 and refused to pay despite arrangement.
demands. FEB filed a complaint for damages and replevin against JVL, Lim and John Doe. JVL
and Lim admitted the existence of the lease agreement but asserted that it is in reality a sale
of equipment on installment basis, with FEB acting as the financier V. PREMIUM
24. AFP GENERAL INS. CORP. VS MOLINA GR 151133 (2008)
RTC: It is a sale on installment based on the contradictory terms in the contract and the FEB
elected full payment of the obligation so for the unreturned units and machineries, JVL and (As another exception for payment of premiums when it is paid as surety) It provides that a
Lim are jointly and severally liable to pay surety bond, once accepted by the obligee becomes valid and enforceable, irrespective of
whether or not the premium has been paid by the obligor.
CA: Granted FEB appeal that it is a financial lease agreement under Republic Act (R.A.) No.
8556 and ordered JVL and Lim jointly and severally to pay P3,414,468.75 Facts:

Issue: Private respondents are the complainants in a case for illegal dismissal filed against Radon
WON JVL and Lim should be jointly and severally be liable for the insured financial lease Security & Allied Services Agency. The labor Arbiter ruled that the private respondents were


illegally dismissed and ordered Radon security to pay them separation pay, backwages and that the policy is valid even if premiums are not paid, but does not expressly prohibit an
other monetary claims. agreement granting credit extension. So is an understanding to allow insured to pay premiums
in installments not so proscribed.”
Radon appealed the Labor Arbiters Decision to NLRC and posted a Supersedeas bond, issued
by herein petitioner AFGIC as Surety Facts:

NLRC still found private respondents as constructively dismissed and ordered Radon security American International Underwriters issued a policy in favor of Makati Tuscany
to pay them their separation pay and other monetary benefits. Condominium Corporation with a total premium of P466,103.05. The company issued a
replacement policy. Premium was again paid. In 1984, the policy was again renewed and
When the NLRC decision became final and executory, private respondents filed an urgent private respondent issued to petitioner another policy. The petitioner paid 152,000 pesos
motion for Execution. Then by virtue of the writ of execution, the NLRC sheriff issued a notice then refused to furnish the balance. The company filed an action to recover the unpaid
of garnishment against the Supersedeas bond. Thus, AFPGIC entered and filed before the balance of P314,103.05.
labor arbiter an omnibus motion to quash notice/writ of garnishment and to discharge
AFPGIC’s appeal bond on the ground that said bond “has been cancelled and thus non- Makati Tuscany explained that it discontinued the payment of premiums because the policy
existent in view of the failure of Radon Security to pay the yearly premiums” did not contain a credit clause in its favor and that the acceptance of premiums didn’t waive
any of the company rights to deny liability on any claim under the policy arising before such
The LA and NLRC denied such motion and pointed out that the question of non-payment of payments or after the expiration of the credit clause of the policy and prior to premium
premium is a dispute between the party who posted the bond and insurer; to allow the bond payment, loss wasn’t covered.
to be canceled would result in a factual and legal absurdity wherein a surety will be rendered
nugatory by simple expedient of non-payment of premiums. It further claimed that the policy was never binding and valid, and no risk attached to the
policy. It then pleaded a counterclaim for P152,000.00 for the premiums already paid for
Issue: Whether or not the surety bond is cancelled by the fact of non-payment of premiums 1984-85, and sought the refund of P924,206.10 representing the premium payments for
1982-85.
Ruling:
Trial court: Dismissed the complaint and counterclaim owing to the argument that payment
No, the surety bond is not cancelled just because of non-payment of premiums. of the premiums of the policies were made during the lifetime or term of said policies, so risk
attached under the policies.
The petitioner contention is that under Section 64 of the insurance code, which is deemed
written into every insurance contract or contract of surety, an insurer may cancel a policy Court of Appeals: Ordered petitioner to pay the balance of the premiums owing to the reason
upon non-payment of the premium, said cancellation is binding upon the beneficiary as the that it was part of an indivisible obligation.
right of a beneficiary is subordinate to that of insured.
Petitioner now asserts that its payment by installment of the premiums for
However, the Supreme Court held, that the petitioner’s reliance on section 64 of the insurance the insurance policies invalidated them because of the provisions of Sec. 77 of
code is misplaced. The said provision refers to insurance contracts in general. While the the Insurance Code disclaiming liability for loss for occurring before payment of premiums.
instant case pertains to a surety bond; thus, the applicable provision of the insurance cod is
section 177. It provides that a surety bond, once accepted by the obligee becomes valid and It argues that where the premiums is not actually paid in full, the policy would only be
enforceable, irrespective of whether or not the premium has been paid by the obligor. The effective if there is an acknowledgment in the policy of the receipt of premium pursuant to
private respondents, the obligees here accepted the bond posted by Radon and issued by Sec. 78 of the Insurance Code. The absence of an express acknowledgment in the policies of
petitioner. Hence, the bond is both valid and enforceable. such receipt of the corresponding premium payments, and petitioner's failure to pay said
premiums on or before the effective dates of said policies rendered them invalid. Petitioner
thus concludes that there cannot be a perfected contract of insurance upon mere partial
25. MAKATI TUSCANY CONDOMINIUM CORP. VS CA GR 95546 (1992) payment of the premiums because under Sec. 77 of the Insurance Code, no contract of
insurance is valid and binding unless the premium thereof has been paid, notwithstanding
While the import of Section 77 is that prepayment of premiums is strictly required as a condition any agreement to the contrary. As a consequence, petitioner seeks a refund of all premium
to the validity of the contract, we are not prepared to rule that the request to make installment payments made on the alleged invalid insurance policies.
payments duly approved by the insurer, would prevent the entire contract of insurance from
going into effect despite payment and acceptance of the initial premium or first installment. Issue:

Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of Whether payment by installment of the premiums due on an insurance policy invalidates the
prepayment by making an acknowledgment in the insurance policy of receipt of premium contract of insurance, in view of Sec. 77 of P.D. 612
as conclusive evidence of payment so far as to make the policy binding despite the fact
that premium is actually unpaid. Section 77 merely precludes the parties from stipulating Ruling:


NO. The subject policies are valid even if the premiums were paid on installments. The Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It alleges
records clearly show that petitioner and private respondent intended in the motion that we had made in the decision our own findings of facts, which are not in
subject insurance policies to be binding and effective notwithstanding the staggered payment accord with those of the trial court and the Court of Appeals. The courts below correctly found
of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, that no notice of non-renewal was made within 45 days before 22 May 1992, or before the
then in 1984. In those three (3) years, the insurer accepted all the installment payments. Such expiration date of the fire insurance policies. Thus, the policies in question were renewed by
acceptance of payments speaks loudly of the insurer's intention to honor the policies operation of law and were effective and valid on 30 June 1992 when the fire occurred, since
it issued to petitioner. the premiums were paid within the 60- to 90-day credit term.

Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing is exposed Respondent likewise disagrees with our ruling that parties may neither agree expressly or
to the peril insured against. Notwithstanding any agreement to the contrary, no policy or impliedly on the extension of credit or time to pay the premium nor consider a policy binding
contract of insurance issued by an insurance company is valid and binding unless and until before actual payment. It urges the Court to take judicial notice of the fact that despite the
the premium thereof has been paid, except in the case of a life or an industrial life policy express provision of Section 77 of the Insurance Code, extension of credit terms in premium
whenever the grace period provision applies. payment has been the prevalent practice in the insurance industry. Most insurance
companies, including Petitioner, extend credit terms because Section 77 of the Insurance
Quoting the CA decision: “While the import of Section 77 is that prepayment of premiums is Code is not a prohibitive injunction but is merely designed for the protection of the parties to
strictly required as a condition to the validity of the contract, we are not prepared to rule that an insurance contract. The Code itself, in Section 78, authorizes the validity of a policy
the request to make installment payments duly approved by the insurer, would prevent the notwithstanding non-payment of premiums.
entire contract of insurance from going into effect despite payment and acceptance of the
initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its
by the insurer of the condition of prepayment by making an acknowledgment in awareness of Section 77 Petitioner persuaded and induced Respondent to believe that
the insurance policy of receipt of premium as conclusive evidence of payment so far as payment of premium on the 60- to 90-day credit term was perfectly alright; in fact it accepted
to make the policy binding despite the fact that premium is actually unpaid. Section 77 payments within 60 to 90 days after the due dates. By extending credit and habitually
merely precludes the parties from stipulating that the policy is valid even if premiums are not accepting payments 60 to 90 days from the effective dates of the policies, it has implicitly
paid, but does not expressly prohibit an agreement granting credit extension. So is an agreed to modify the tenor of the insurance policy and in effect waived the provision therein
understanding to allow insured to pay premiums in installments not so proscribed.” that it would pay only for the loss or damage in case the same occurred after payment of the
premium.
It appearing from the peculiar circumstances that the parties actually intended to make three
(3) insurance contracts valid, effective and binding, petitioner may not be allowed to renege Petitioner filed an opposition to the Respondent's motion for reconsideration. It argues that
on its obligation to pay the balance of the premium after the expiration of the whole term. both the trial court and the Court of Appeals overlooked the fact that on 6 April 1992
Moreover, as correctly observed by the appellate court, where the risk is entire and the Petitioner sent by ordinary mail to Respondent a notice of non-renewal and sent by personal
contract is indivisible, the insured is not entitled to a refund of the premiums paid if the delivery a copy thereof to Respondent's broker, Zuellig. Both courts likewise ignored the fact
insurer was exposed to the risk insured for any period, however brief or momentary. that Respondent was fully aware of the notice of non-renewal. A reading of Section 66 of the
Insurance Code readily shows that in order for an insured to be entitled to a renewal of a non-
life policy, payment of the premium due on the effective date of renewal should first be made.
26. UCPB GENERAL INSURANCE VS MASAGANA TELAMART GR 137172 (2001) Respondent's argument that Section 77 is not a prohibitive provision finds no authoritative
support.
Section 77 of Insurance Code has 5 exceptions: (1) industrial life policy whenever the grace
period provision applies, (2) Sec 78, (4) parties have agreed to the payment in installments of the Issue:
premium and partial payment has been made at the time of loss and, (5) Estoppel
The instant case has to rise or fall on the core issue of whether Section 77 of the Insurance
Facts: Code of 1978 (P.D. No. 1460) must be strictly applied to Petitioner's advantage despite its
practice of granting a 60- to 90-day credit term for the payment of premiums.
In our decision of 15 June 1999, we defined the main issue to be "whether the fire insurance
policies issued by petitioner to the respondent covering the period from May 22, 1991 to May Ruling:
22, 1992 . . . had been extended or renewed by an implied credit arrangement though actual
payment of premium was tendered on a later date and after the occurrence of the (fire) risk Section 77 of the Insurance Code of 1978 provides:
insured against." We resolved this issue in the negative in view of Section 77 of the Insurance SECTION 77. An insurer is entitled to payment of the premium as soon as the thing
Code and our decisions in Valenzuela v. Court of Appeals; 2 South Sea Surety and Insurance Co., insured is exposed to the peril insured against. Notwithstanding any agreement to
Inc. v. Court of Appeals; 3 and Tibay v. Court of Appeals. 4 Accordingly, we reversed and set the contrary, no policy or contract of insurance issued by an insurance company is
aside the decision of the Court of Appeals. valid and binding unless and until the premium thereof has been paid, except in the


case of a life or an industrial life policy whenever the grace period provision Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract
applies. to provide a credit term within which to pay the premiums. That agreement is not against the
law, morals, good customs, public order or public policy. The agreement binds the parties.
This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated
on 18 December 1974. In turn, this Section has its source in Section 72 of Act No. 2427 Article 1306 of the Civil Code provides:
otherwise known as the Insurance Act as amended by R.A. No. 3540, approved on 21 June ARTICLE 1306. The contracting parties may establish such stipulations clauses,
1963, which read: terms and conditions as they may deem convenient, provided they are not contrary
SECTION 72. An insurer is entitled to payment of premium as soon as the thing to law, morals, good customs, public order, or public policy.
insured is exposed to the peril insured against, unless there is clear agreement to
grant the insured credit extension of the premium due. No policy issued by an Finally in the instant case, it would be unjust and inequitable if recovery on the policy would
insurance company is valid and binding unless and until the premium thereof has not be permitted against Petitioner, which had consistently granted a 60- to 90-day credit
been paid. (Italic supplied) term for the payment of premiums despite its full awareness of Section 77. Estoppel bars it
from taking refuge under said Section, since Respondent relied in good faith on such practice.
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly
permitting an agreement to extend the period to pay the premium. But are there exceptions to Estoppel then is the fifth exception to Section 77.
Section 77? WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and SET
ASIDE, and a new one is hereby entered DENYING the instant petition for failure of
The answer is in the affirmative. Petitioner to sufficiently show that a reversible error was committed by the Court
The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life of Appeals in its challenged decision, which is hereby AFFIRMED in toto.
policy whenever the grace period provision applies.

The second is that covered by Section 78 of the Insurance Code, which provides: 27. AMERICAN HOME INSURANCE VS CHUA GR 130421 (1999)
SECTION 78. Any acknowledgment in a policy or contract of insurance of the
receipt of premium is conclusive evidence of its payment, so far as to make the “An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive
policy binding, notwithstanding any stipulation therein that it shall not be binding evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation
until premium is actually paid. therein that it shall not be binding until the premium is actually paid.”

A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Facts:
Appeals, 5 wherein we ruled that Section 77 may not apply if the parties have agreed to the
payment in installments of the premium and partial payment has been made at the time of Chua obtained from American Home a fire insurance covering the stock-in-trade of his
loss. business. The insurance was due to expire on March 25, 1990.

Not only that. In Tuscany, we also quoted with approval the following pronouncement of the On April 5, 1990, Chua issued a check for P2,983.50 to American Home’s agent, James Uy, as
Court of Appeals in its Resolution denying the motion for reconsideration of its decision: payment for the renewal of the policy. The official receipt was issued on April 10. In turn, the
Section 78 of the Insurance Code in effect allows waiver by the insurer of the latter a renewal certificate. A new insurance policy was issued where petitioner undertook to
condition of prepayment by making an acknowledgment in the insurance policy of indemnify respondent for any damage or loss arising from fire up to P200,000 from March
receipt of premium as conclusive evidence of payment so far as to make the policy 20, 1990 to March 25, 1991. On April 6, 1990, the business was completely razed by fire.
binding despite the fact that premium is actually unpaid. Section 77 merely Total loss was estimated between P4,000,000 and P5,000,000. Respondent filed an insurance
precludes the parties from stipulating that the policy is valid even if premiums are claim with petitioner and four other co-insurers, namely, Pioneer Insurance, Prudential
not paid, but does not expressly prohibit an agreement granting credit extension, Guarantee, Filipino Merchants and Domestic Insurance. Petitioner refused to honor the claim
and such an agreement is not contrary to morals, good customs, public order or hence, the respondent filed an action in the trial court.
public policy So is an understanding to allow insured to pay premiums in
installments not so prescribed. At the very least, both parties should be deemed in American Home claimed there was no existing contract because respondent did not pay the
estoppel to question the arrangement they have voluntarily accepted. premium. Even with a contract, they contended that he was ineligible because of his
fraudulent tax returns, his failure to establish the actual loss and his failure to notify to
By the approval of the aforequoted findings and conclusion of the Court of petitioner of any insurance already effected. The trial court ruled in favor of respondent
Appeals, Tuscany has provided a fourth exception to Section 77, namely, that the insurer may because the respondent paid by way of check a day before the fire occurred and that the other
grant credit extension for the payment of the premium. This simply means that if the insurer insurance companies promptly paid the claims. American homes was made to pay 750,000 in
has granted the insured a credit term for the payment of the premium and loss occurs before damages.
the expiration of the term, recovery on the policy should be allowed even though the
premium is paid after the loss but within the credit term. The Court of Appeals found that respondent’s claim was substantially proven and petitioner’s
unjustified refusal to pay the claim entitled respondent to the award of damages.


Respondent acquired several co-insurers and he failed to disclose this information to
American Home filed the petition reiterating its stand that there was no existing insurance petitioner. Nonetheless, petitioner is estopped from invoking this argument due to the loss
contract between the parties. It invoked Section 77 of the Insurance Code, which provides adjuster’s admission of previous knowledge of the co-insurers.
that no policy or contract of insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid and the case of Arce v. Capital Insurance It cannot be said that petitioner was deceived by respondent by the latter’s non-disclosure of
that until the premium is paid there is no insurance. the other insurance contracts when petitioner actually had prior knowledge thereof. The loss
adjuster, being an employee of petitioner, is deemed a representative of the latter whose
Issues: awareness of the other insurance contracts binds petitioner.
1. Whether there was a valid payment of premium, considering that respondent’s check was
cashed after the occurrence of the fire
2. Whether respondent violated the policy by his submission of fraudulent documents and 28. TIBAY VS CA GR 119655 (1996)
non-disclosure of the other existing insurance contracts
Facts:
Ruling:
On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc.
1. The trial court found, as affirmed by the Court of Appeals, that there was a valid check (FORTUNE) issued Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or
payment by respondent to petitioner. The court respected this. Nicolas Roraldo on their two-storey residential building located at 5855 Zobel Street, Makati
City, together with all their personal effects therein. The insurance was for P600,000.00
The renewal certificate issued to respondent contained the acknowledgment that premium covering the period from 23 January 1987 to 23 January 1988. On 23 January 1987, of the
had been paid. In the instant case, the best evidence of such authority is the fact that total premium of P2,983.50, petitioner Violeta Tibay only paid P600.00 thus leaving a
petitioner accepted the check and issued the official receipt for the payment. It is, as well, considerable balance unpaid.
bound by its agent’s acknowledgment of receipt of payment.
On 8 March 1987 the insured building was completely destroyed by fire. Two days later or on
Section 78 of the Insurance Code explicitly provides: 10 March 1987 Violeta Tibay paid the balance of the premium. On the same day, she filed with
An acknowledgment in a policy or contract of insurance of the receipt of premium is FORTUNE a claim on the fire insurance policy. Her claim was accordingly referred to its
conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately wrote Violeta
stipulation therein that it shall not be binding until the premium is actually paid. requesting her to furnish it with the necessary documents for the investigation and
processing of her claim. Petitioner forthwith complied. On 28 March 1987 she signed a non-
Section 77 of the Insurance Code waiver agreement with GASI to the effect that any action taken by the companies or their
An insurer is entitled to payment of the premium as soon as the thing insured is exposed to representatives in investigating the claim made by the claimant for his loss which occurred at
the peril insured against. Notwithstanding any agreement to the contrary, no policy or 5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or ascertainment of the
contract of insurance issued by an insurance company is valid and binding unless and until amount of actual cash value and loss, shall not waive or invalidate any condition of the policies
the premium thereof has been paid, except in the case of life or an industrial life policy of such companies held by said claimant, nor the rights of either or any of the parties to this
whenever the grace period provision applies. agreement, and such action shall not be, or be claimed to be, an admission of liability on the part
of said companies or any of them.

2. Submission of the alleged fraudulent documents pertained to respondent’s income tax However, FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 and of
returns for 1987 to 1989. Respondent, however, presented a BIR certification that he had Sec. 77 of the Insurance Code. Efforts to settle the case before the Insurance Commission
paid the proper taxes for the said years. Since this is a question of fact, the finding is proved futile. As such, on 3 March 1988, Violeta and the other petitioners sued FORTUNE for
conclusive. damages.

Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co- The RTC ruled in favor of Tibay. But on appeal, the CA reversed RTC’s decision and ruled in
insurers, non-disclosure is a violation that entitles the insurer to avoid the policy. The favor of FORTUNE.
purpose for the inclusion of this clause is to prevent an increase in the moral hazard. The
relevant provision is Section 75, which provides that: Issue:

A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise Is FORTUNE liable under the fire insurance policy notwithstanding the failure of Tibay, etc., to
the breach of an immaterial provision does not avoid the policy. pay the premium in full? (Such premium having been paid in full only 2 days after the
occurrence of the fire)

Ruling:


NO. FORTUNE is not liable under the fire insurance policy. Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with
“Insurance is a contract whereby one undertakes for a consideration to indemnify another Sec. 77 of the Insurance Code the payment of partial premium by the assured in this particular
against loss, damage or liability arising from an unknown or contingent event. The instance should not be considered the payment required by the law and the stipulation of the
consideration is the premium, which must be paid at the time and in the way and manner parties. Rather, it must be taken in the concept of a deposit to be held in trust by the insurer
specified in the policy, and if not so paid, the policy will lapse and be forfeited by its own until such time that the full amount has been tendered and duly receipted for. In other words,
terms.” as expressly agreed upon in the contract, full payment must be made before the risk occurs
for the policy to be considered effective and in force.
The pertinent provisions in the Fire Insurance Policy on premium read:
Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according
THIS POLICY OF INSURANCE WITNESSETH, THAT only after payment to the to law ever resulted from the fractional payment of premium. The insurance contract itself
Company in accordance with Policy Condition No. 2 of the total premiums by the expressly provided that the policy would be effective only when the premium was paid in
insured as stipulated above for the period aforementioned for insuring against Loss full. It would have been altogether different were it not so stipulated. Ergo, petitioners had
or Damage by Fire or Lightning as herein appears, the Property herein described x absolute freedom of choice whether or not to be insured by FORTUNE under the terms of its
x x policy and they freely opted to adhere thereto.
2. This policy including any renewal thereof and/or any endorsement thereon is
not in force until the premium has been fully paid to and duly receipted by the
Company in the manner provided herein. 29. PHIL. PHOENIX SURETY VS INS. CO. VS WOODWORKS, INC. 92 SCRA 419
Any supplementary agreement seeking to amend this condition prepared by agent,
broker or Company official, shall be deemed invalid and of no effect. Facts:
xxx xxx xxx
Except only in those specific cases where corresponding rules and regulations Upon Woodwork's application, Phil Phoenix issued in its favor Fire Insurance Policy No. 9749
which are or may hereafter be in force provide for the payment of the stipulated for P500,000.00 whereby the latter insured the former's building, machinery and equipment
premiums in periodic installments at fixed percentage, it is hereby declared, agreed for a term of one year against loss by fire. The premium and other charges amounted to
and warranted that this policy shall be deemed effective, valid and binding upon P10,593.36. It is undisputed that Woodworks did not pay the premium stipulated in the
the Company only when the premiums therefor have actually been paid in full Policy when it was issued nor at any time thereafter. Phil Phoenix notified Woodworks of the
and duly acknowledged in a receipt signed by any authorized official or cancellation of the Policy. Phil Phoenix credited Woodworks for the unexpired period of 94
representative/agent of the Company in such manner as provided herein, (Italics days, and claimed the balance representing "earned premium for say 271 days." It demanded
supplied). in writing for the payment of said amount. Woodworks disclaimed any liability contending, in
essence, that it need not pay premium "because the Insurer did not stand liable for any
Clearly the Policy provides for payment of premium in full. Accordingly, where the indemnity during the period the premiums were not paid."
premium has only been partially paid and the balance paid only after the peril insured against
has occurred, the insurance contract did not take effect and the insured cannot collect at all on Issue:
the policy. This is fully supported by Sec. 77 of the Insurance Code which provides:
WON the Fire Insurance Policy, was a binding contract even if the premium stated in the
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing policy has not been paid;
insured is exposed to the peril insured against. Notwithstanding any agreement to
the contrary, no policy or contract of insurance issued by an insurance company is Ruling:
valid and binding unless and until the premium thereof has been paid, except in
the case of a life or an industrial life policy whenever the grace period provision No. When the policy is tendered the insured must pay the premium unless credit is given or
applies (Italics supplied). there is a waiver, or some agreement obviating the necessity for prepayment." To constitute
an extension of credit there must be a clear and express agreement therefor." From the Policy
The Phoenix case and Tuscany case (which Tibay relied upon), adequately demonstrate the provisions, we fail to find any clear agreement that a credit extension was accorded
waiver, either express or implied, of prepayment in full by the insurer: impliedly, by suing for Woodworks. And even if it were to be presumed that Phil Phoenix had extended credit from
the balance of the premium as in Phoenix, and expressly, by agreeing to make premiums the circumstances of the unconditional delivery of the Policy without prepayment of the
payable in installments as in Tuscany. But contrary to the stance taken by petitioners, there is premium, yet it is obvious that Woodworks had not accepted the insurer's offer to extend
no waiver express or implied in the case at bench. Precisely, the insurer and the insured credit, which is essential for the validity of such agreement.
expressly stipulated that (t)his policy including any renewal thereof and/or any indorsement
thereon is not in force until the premium has been fully paid to and duly receipted by the
Company x x x and that this policy shall be deemed effective, valid and binding upon the
Company only when the premiums therefor have actually been paid in full and duly
acknowledged.


VI. POLICY OF INSURANCE CFI: Ruled in favor of Pacific Timber and ordered Workmen’s Insurance to pay the sum of
30. PACIFIC TIMBER EXPORT CORPORATION VS CA 112 SCRA 199 Php ll,042.04 with interest at the rate of 12% interest from receipt of notice of loss on April
15, 1963 up to the complete payment

Petitioner: Pacific Timber Export Corporation CA: Reversed the said decision and held that the cover note was null and void for lack of
Respondent: Workmen’s Insurance Company Inc (Insurer) valuable consideration and held that Workmen’s Insurance is released from liability under
the cover note due to Pacific Timber’s unreasonable delay in giving notice of loss
Facts:

Issues:
On March 19, 1963, Pacific Timber secured temporary insurance from the Workmen’s

Insurance Company for its exportation of 1,250,000 board feet of Philippine Lauan and 1. W/N the cover note issued was null and void for lack of consideration.
Apitong logs. Workmen’s Insurance Company issued on said date Cover Note No. 1010, 2. W/N Workmen’s Insurance is released from liability due to Pacific Timber’s
insuring the said cargo of the petitioner. The regular marine cargo policies were issued by unreasonable delay in giving notice of loss.
the insurance company in favor of Pacific Timber on April 2, 1963. The two marine policies
(53 HO 1032 & 53 HO 1033) insured a total cargo consisting of 1,385 logs. Ruling:

After the issuance of Cover Note No. 1010 but before the issuance of the two marine policies 1. SC upheld Pacific Timber’s submission that the Cover Note was not without consideration.
Nos. 53 HO 1032 and 53 HO 1033, some of the logs intended to be exported were lost during The fact that no separate premium was paid on the Cover Note before the loss insured
loading operations in the Diapitan Bay. The logs were to be loaded on the 'SS Woodlock'. The against occurred, does not militate against the validity of petitioner's contention, for no
logs were taken from the log pond of Pacific Timber and from which they were towed in rafts such premium could have been paid, since by the nature of the Cover Note, it did not
to the vessel. At about 10:00 o'clock a. m., while the logs were alongside the vessel, bad contain, as all Cover Notes do not contain particulars of the shipment that would serve as
weather developed resulting in 75 pieces of logs which were rafted together co break loose
basis for the computation of the premiums. At any rate, Pacific Timber paid in full all the
from each other. 45 pieces of logs were salvaged, but 30 pieces were verified to have been lost
premiums after the issuance of the two regular marine insurance policies, leaving no account
or washed away as a result of the accident. unpaid which must be deemed to include the Cover Note. If the Note is to be treated as a
separate policy instead of integrating it to the regular policies subsequently issued, the
In a letter, Pacific Timber informed Workmen’s Insurance Company about the loss of purpose and function of the Cover Note would be set at naught or rendered meaningless, for it
'appropriately 32 pieces of logs during loading of the 'SS Woodlock'. Pacific Timber submitted is in a real sense a contract, not a mere application for insurance which is a mere offer.
a “Claim Statement” demanding payment of the loss under the regular marine policies in the
total amount of P19, 286.79. It may be true that the marine insurance policies issued were for logs no longer including
those which had been lost during loading operations. This had to be so because the risk
Workmen’s Insurance Company requested the First Philippine Adjustment Corporation to insured against is not for loss during operations anymore, but for loss during transit, the logs
inspect the loss and assess the damage. The adjustment company reported that “the loss of 30 having already been safely placed aboard. This would make no difference insofar as the
pieces of logs is not covered by Policies Nos. 53 HO 1032 and 1033 inasmuch as said policies liability on the cover note is concerned, for the number or volume of logs lost can be
covered the actual number of logs loaded on board the 'SS Woodlock.' However, the loss of 30 determined independently which Workmen’s Insurance did when it sent its own adjuster to
pieces of logs is within the 1,250,000 bd. ft. covered by Cover Note 1010 insured for
assess the loss.
$70,000.00.” The adjustment company submitted a computation of Workmen’s probable

liability in the total of P11, 042.04. The adjuster went as far as submitting his report to Workmen’s Insurance, as well as its
computation of the said insurance company’s liability on the insurance coverage. This
Workmen’s Insurance wrote a letter denying Pacific Timber’s claim on the ground that coverage could not have been no other than what was stipulated in the Cover Note, for no loss
investigations done by Workmen’s revealed the entire shipment of logs covered by the two or damage had to be assessed on the coverage arising from the marine insurance policies. For
marine policies No. 53 110 1032 and 713 HO 1033 were received in good order at their point obvious reasons, it was not necessary to ask petitioner to pay premium on the Cover Note, for
of destination. It was further stated that the said loss may be considered as covered under the loss insured against having already occurred, the more practical procedure is simply to
Cover Note No. 1010 because the said Note had become 'null and void by virtue of the deduct the premium from the amount due the petitioner on the Cover Note.
issuance of Marine Policy Nos. 53 HO 1032 and 1033'.
The non-payment of premium on the Cover Note is, therefore, no cause for the petitioner to
The denial by Workmen’s was brought to the attention of the Insurance Commissioner. In a lose what is due it as if there had been payment of premium, for non-payment by it was not
reply letter, Insurance Commissioner Francisco Y. Mandanas observed that 'it is only fair and
chargeable against its fault. Had all the logs been lost during the loading operations, but after
equitable to indemnify the insured under Cover Note No. 1010', and advised early settlement
the issuance of the Cover Note, liability on the note would have already arisen even before
of the said marine loss and salvage claim.’ Workmen’s Insurance Company denied the claim payment of premium. This is how the cover note as a "binder" should legally operate
the ground that the cover note is null and void for lack of valuable consideration. otherwise, it would serve no practical purpose in the realm of commerce, and is supported by


the doctrine that where a policy is delivered without requiring payment of the premium, the Issues:
presumption is that a credit was intended and policy is valid.
1. Whether the binding deposit receipt constituted a temporary contract of the life insurance
2. The defense of Pacific Timber’s delay as raised by the insurance company cannot be in question; and
sustained. In the proceedings that took place later in the Office of the Insurance 2. Whether private respondent Ngo Hing concealed the state of health and physical
Commissioner, Workmen’s Insurance should then have raised this ground of delay to avoid condition of Helen Go, which rendered void the deposit receipt.
liability. It did not do so. It must be because it did not find any delay, as this Court fails to find
a real and substantial sign thereof. But even on the assumption that there was delay, this Ruling:
Court is satisfied and convinced that as expressly provided by law, waiver can successfully be
raised against the respondent. 1. The binding deposit receipt is, manifestly, merely conditional and does not insure
outright.
Thus Section 84 of the Insurance Act provides:
Section 84.—Delay in the presentation to an insurer of notice or proof of loss is waived if caused At the back of Exhibit E are condition precedents required before a deposit is considered a
by any act of his or if he omits to take objection promptly and specifically upon that ground. BINDING RECEIPT.

The appealed decision is set aside and the decision of CFI is reinstated in toto. The provisions printed on the deposit receipt show that the binding deposit receipt is
intended to be merely a provisional or temporary insurance contract and only upon
compliance of the following conditions: (1) that the company shall be satisfied that the
31. GREAT PACIFIC LIFE ASSURANCE CORPORATION VS CA 89 SCRA 543 applicant was insurable on standard rates; (2) that if the company does not accept the
application and offers to issue a policy for a different plan, the insurance contract shall not be
Facts: binding until the applicant accepts the policy offered; otherwise, the deposit shall be
refunded; and (3) that if the applicant is not insurable according to the standard rates, and the
March 14, 1957, private respondent Ngo Hing filed an application with company disapproves the application, the insurance applied for shall not be in force at any
the Great Pacific Life Assurance Company for a twenty-year endowment policy in the time, and the premium paid shall be returned to the applicant.
amount of P50,000.00 on the life of his one-year old daughter Helen Go. Ngo-Hing supplied
the essential data which petitioner Lapulapu D. Mondragon, Branch Manager of the The binding deposit receipt is merely an acknowledgment, on behalf of the company, that the
Pacific Life in Cebu City and was signed by private respondent Ngo Hing. latter's branch office had received from the applicant the insurance premium and had
accepted the application subject for processing by the insurance company; and that the latter
Respondent paid the annual premium, the sum of P1,077.75 going over to the Company, but will either approve or reject the same on the basis of whether or not the applicant is
he retained the amount of P1,317.00 as his commission for being a duly authorized "insurable on standard rates."
agent of Pacific Life. Upon the payment of the insurance premium, the binding deposit receipt
was issued to private respondent Ngo Hing. Since petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing,
the binding deposit receipt in question had never become in force at any time.
Mondragon received a letter from Pacific Life disapproving the insurance application stating
that the said life insurance application for 20-year endowment plan is not available for minors The binding deposit receipt or binding slip is, manifestly, merely conditional and does not
below seven years old, but Pacific Life can consider the same under the Juvenile Triple Action insure outright or by itself. Where an agreement is made between the applicant and the agent,
Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent no liability shall attach until the principal approves the risk and a receipt is given by the agent.
to the Company. The acceptance is merely conditional, and is subordinated to the act of the company in
approving or rejecting the application.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by
petitioner Mondragon to private respondent Ngo Hing. Instead, Mondragon wrote Pacific Life disapproved the insurance application in question on the ground that it is not
back Pacific Life again strongly recommending the approval of the 20-year offering the twenty-year endowment insurance policy to children less than seven years of age.
endowment life insurance on the ground that Pacific Life is the only insurance company not What it offered instead is another plan known as the Juvenile Triple Action, which private
selling the 20-year endowment insurance plan to children, pointing out that since 1954 the respondent failed to accept.
customers, especially the Chinese, were asking for such coverage.
In the absence of a meeting of the minds between petitioner Pacific Life and respondent Ngo
On May 28, 1957 Helen Go died of influenza with complication of broncho-pneumonia. Hing over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the
Respondent sought the payment of the proceeds of the insurance, he then filed the action for latter's one-year old daughter, and with the non-compliance of the conditions stated in the
the recovery of the same before the Court of First Instance of Cebu, which rendered an disputed binding deposit receipt, there could have been no insurance contract duly perfected
adverse decision against both petitioners. between them.


A contract of insurance, like other contracts, must be assented to by both parties either in 32. PHILAM LIFE AND GENERAL INSURANCE CO. VS JUDGE VALENCIA-BAGALACSA GR
person or by their agents. The contract, to be binding from the date of the application, must 139776 (2002)
have been a completed contract, one that leaves nothing to be done, nothing to be completed,
nothing to be passed upon, or determined, before it shall take effect. There can be no Facts:
contract of insurance unless the minds of the parties have met in agreement." Private respondents, as legitimate children and forced heirs of their late father, Faustino
Lumaniog, filed with the aforesaid RTC, a complaint for recovery of sum of money against
Failure of petitioner Mondragon to communicate to respondent the rejection of the insurance petitioner alleging that: their father was insured by petitioner under Life Insurance Policy No.
application does not have any adverse effect on the allegedly perfected temporary contract. In 1305486 with a face value of P50,000.00; their father died of coronary thrombosis. They
the first place, there was no contract perfected between the parties who had no continuously claimed for all the proceeds and interests under the life insurance policy in the
meeting of their minds. Private respondent, being an authorized insurance amount of P641,000.00, despite repeated demands for payment of the claim due from
agent of Pacific Life at Cebu branch office, is aware that said company does not offer the petitioner, petitioner finally refused or disallowed said claim.
life insurance applied for.
PHILAM LIFE INSURANCE Counterclaim:
When he filed the insurance application in dispute, private respondent was only taking the The cause of action of private respondents had prescribed and they are guilty of laches. It had
chance that Pacific Life will approve the application in question along with his proposal that denied private respondents claim on ground of concealment on the part of the deceased
the insurance company starts to offer the 20-year endowment insurance plan for children less insured Faustino when he asserted in his application for insurance coverage that he had not
than seven years. Pacific Life rejected the proposal and recommendation. Secondly, having an been treated for indication of chest pain, palpitation, high blood pressure, rheumatic fever,
insurable interest on the life of his one-year old daughter, aside from being an insurance heart murmur, heart attack or other disorder of the heart or blood vessel when in fact he was
agent and an office associate of petitioner Mondragon, private respondent Ngo Hing must a known hypertensive since 1974. It reiterated its decision to deny the claim for payment of
have known and followed the progress on the processing of such application and could not the proceeds; more than ten (10) years later
pretend ignorance of the Company's rejection of the 20-year endowment life insurance
application. Issues:

2. Respondent deliberately concealed the state of health and physical condition of his 1. Whether or not the complaint filed by private respondents for payment of life insurance
daughter. proceeds is already barred by prescription of action.
2. Whether or not an extrajudicial demand made after an action has prescribed shall cause the
Relative to the second issue of alleged concealment, private respondent had deliberately revival of the action
concealed the state of health and physical condition of his daughter Helen Go. When
respondent supplied the required essential data for the insurance application form, he was Ruling:
fully aware that his one-year old daughter is typically a mongoloid child. Such a congenital
physical defect could never be ensconced nor disguised. Respondent, in apparent bad faith, It must be emphasized that petitioner had specifically alleged in the Answer that it had denied
withheld the fact material to the risk to be assumed by the insurance company. As an private respondents claim per its letter dated July 11, 1983. Hence, due process demands that
insurance agent of Pacific Life, he ought to know, as he surely must have known, his duty and it be given the opportunity to prove that private respondents had received said letter, dated
responsibility to supply such a material fact. Had he divulged said significant fact in the July 11, 1983. Said letter is crucial to petitioners defense that the filing of the complaint for
insurance application form, Pacific Life would have verified the same and would have had no recovery of sum of money in June, 1995 is beyond the 10-year prescriptive period.
choice but to disapprove the application outright.
A perusal of the record will likewise reveal that plaintiffs counsel explained that the running
The contract of insurance is one of perfect good faith. of the ten (10) year period was stopped on May 25, 1983, upon demand of Celso Lomaniog for
the compliance of the contract and reconsideration of the decision. Counsel also wrote the
Petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance Company are absolved President of the Company on December 1, 1994, asking for reconsideration. The letter was
from their civil liabilities as found by respondent Court and ordering the insurance company answered by the Assistant Vice President of the Claims Department of Philamlife, with the
to reimburse the amount of P1,077.75, without interest, to private respondent, Ngo Hing. advise that the company is reviewing the claim. On February 14, 1995, Atty. Abis sent a letter
Costs against private respondent. to counsel, finally deciding the plaintiffs claim. Thus, the period of prescription should
commence to run only from February 14, 1995, when Atty. Abis finally decided plaintiffs
claim.

It is evident from the foregoing that the ten (10) year period for plaintiffs to claim the
insurance proceeds has not yet prescribed. The final determination denying the claim was
made only on February 14, 1995. Hence, when the instant case was filed on June 20, 1995, the
ten year period has not yet lapsed. Moreover, defendants counsel failed to comply with the
requirements of the Rules in filing his motion for reconsideration.


33. CIR VS LINCOLN PHILIPPINE LIFE INSURANCE CO. INC GR 119176 (2002) The "automatic increase clause" in the policy is in the nature of a conditional obligation under
Article 1181, by which the increase of the insurance coverage shall depend upon the
Facts: happening of the event which constitutes the obligation. In the instant case, the additional
insurance that took effect in 1984 was an obligation subject to a suspensive obligation, but
Private respondent Lincoln Life Insurance is a domestic corporation engaged in life insurance still a part of the insurance sold to which private respondent was liable for the payment of the
business. In the years prior to 1984, private respondent issued a special kind of life insurance documentary stamp tax.
policy known as the "Junior Estate Builder Policy," the distinguishing feature of which is a
clause providing for an automatic increase in the amount of life insurance coverage upon The deficiency of documentary stamp tax imposed on private respondent is definitely not on
attainment of a certain age by the insured without the need of issuing a new policy. The clause the amount of the original insurance coverage, but on the increase of the amount insured
was to take effect in the year 1984. Documentary stamp taxes due on the policy were paid by upon the effectivity of the "Junior Estate Builder Policy."
petitioner only on the initial sum assured.
To claim that the increase in the amount insured (by virtue of the automatic increase clause
Subsequently, petitioner issued deficiency documentary stamps tax assessment for the year incorporated into the policy at the time of issuance) should not be included in the
1984 in the amount of P464, 898.75 corresponding to the amount of automatic increase of the computation of the documentary stamp taxes due on the policy would be a clear evasion of
sum assured on the policy issued by respondent. the law requiring that the tax be computed on the basis of the amount insured by the policy.

Private respondent questioned the deficiency assessments and sought their cancellation in a
petition filed in the Court of Tax Appeals. The Court of Tax Appeals found no valid basis for the 34. RIZAL SURETY AND INSURANCE COMPANY VS CA AND TRANSWORLD KNITTING
deficiency tax assessment on the insurance policy. The Court of Appeals affirmed the decision MILL, INC. GR 112360 (2000)
of the Court of Tax Appeals decision insofar as it nullified the deficiency assessment on the
insurance policy. The Commissioner of Internal Revenue filed the present petition questioning

Facts:
that portion of the Court of Appeals’ decision which invalidated the deficiency assessment on

the insurance policy.
Rizal Surety issued a 1 million peso fire insurance policy with Transworld. This was increased

to 1.5 million. A four span building was part of the policy. A fire broke out and gutted the
Petitioner claims that the "automatic increase clause" in the subject insurance policy is
building, together with a two storey building behind it were gaming machines were stored.
separate and distinct from the main agreement and involves another transaction; and that,
The company filed its claims but to no avail.
while no new policy was issued, the original policy was essentially re-issued when the

additional obligation was assumed upon the effectivity of this "automatic increase clause" in
Hence, it brought a suit in court. It aimed to make Rizal pay for almost 3 million including
1984; hence, a deficiency assessment based on the additional insurance not covered in the
legal interest and damages. Rizal claimed that the policy only covered damage on the four
main policy is in order.
span building and not the two storey building.

Issue:
The trial court ruled in Transworld’s favor and ordered Rizal to pay actual damages only. The

court of appeals increased the damages.
Whether or not the automatic increase clause involves another transaction subject to tax

assessment
The insurance company filed a MFR. The CA answered by modifying the imposition of

interest. Not satisfied, the insurance company petitioned to the Supreme Court.
Ruling:

Issue:
YES. It is clear from Section 173 that the payment of documentary stamp taxes is done at the

time the act is done or transaction had and the tax base for the computation of documentary
Whether or not Rizal Surety is liable for loss of the two-storey building considering that the
stamp taxes on life insurance policies under Section 183 is the amount fixed in policy, unless
fire insurance policy sued upon covered only the contents of the four-span building
the interest of a person insured is susceptible of exact pecuniary measurement. The amount

fixed in the policy is the figure written on its face and whatever increases will take effect in the
Ruling:
future by reason of the "automatic increase clause" embodied in the policy without the need of

another contract.
Both the trial court and the CA found that the so-called “annex” as not an annex building but

an integral and inseparable part of the four-span building described in the policy and
Here, although the automatic increase in the amount of life insurance coverage was to take
consequently, the machines and spare parts stored therein were covered by the fire insurance
effect later on, the date of its effectivity, as well as the amount of the increase, was already
in dispute.
definite at the time of the issuance of the policy. Thus, the amount insured by the policy at the

time of its issuance necessarily included the additional sum covered by the automatic increase
So also, considering that the two-storey building aforementioned was already existing when
clause because it was already determinable at the time the transaction was entered into and
subject fire insurance policy contract was entered into on Jan. 12, 1981, having been
formed part of the policy.


constructed some time in 1978, petitioner should have specifically excluded the said two- Issues:
storey building from the coverage of the fire insurance if minded to exclude the same but if
did not, and instead, went on to provide that such fire insurance policy covers the products, 1. Whether or not the widow is the real party in interest.
raw materials and supplies stored within the premises of Transworld which was an integral 2. Whether or not the Grepalife is justified in denying the claim.
part of the four-span building occupied by Transworld, knowing fully well the existence of
such building adjoining and intercommunicating with the right section of the four-span Ruling:
building.
1. The rationale of a group insurance policy of mortgagors, otherwise known as the “mortgage
Also, in case of doubt in the stipulation as to the coverage of the fire insurance policy, under redemption insurance”, is a device for the protection of both the mortgagee and the
Art. 1377 of the New Civil Code, the doubt should be resolved against the Rizal Surety, whose mortgagor. On the part of the mortgagee, in the event of the unexpected demise of the
layer or managers drafted the fire insurance policy contract under scrutiny. mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance
will be applied to the payment of the mortgage debt, thereby relieving the heirs of the
In Landicho vs. Government Service Insurance System, the Court ruled that “the terms in an
mortgagor from paying the obligation. The mortgage will be extinguished by the application
insurance policy, which are ambiguous, equivocal or uncertain x x x are to be construed
of the insurance proceeds to the mortgage indebtedness. In this type of policy insurance, the
strictly and most strongly against the insurer, and liberally in favor of the insured so as to
effect the dominant purpose of indemnity or payment to the insured, especially where mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not
forfeiture is involved, and the reason for this is that the insured usually has no voice in the make the mortgage e a party to the contract.
selection or arrangement of the words employed and that the language of the contract is
selected with great care and deliberation by experts and legal advisers employed by, and Section 8 of the Insurance Code provides:
acting exclusively in the interest of, the insurance company.” "Unless the policy provides, where a mortgagor of property effects insurance in his own name
providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a
mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not
VII. DEVICES FOR ASCERTAINING AND CONTROLLING RISK AND LOSS cease to be a party to the original contract, and any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same effect, although the property is in the hands
35. GREAT PACIFIC LIFE ASSURANCE VS CA 316 SCRA 678 of the mortgagee, but any act which, under the contract of insurance, is to be performed by
the mortgagor, may be performed by the mortgagee therein named, with the same effect as if
Mortgage redemption insurance is a device for the protection of both the mortgagee and the it had been performed by the mortgagor."
mortgagor. The proceeds from such insurance will be applied to the payment of the of the
mortgage debt, relieving the heirs of the mortgagor from paying the obligation. And since a policy of insurance upon life or health may pass by transfer, will or succession to
any person, whether he has an insurable interest or not, and such person may recover it
The fraudulent intent on the part of the insured must be established to entitle the insurer to whatever the insured might have recovered, the widow of the decedent may file the suit
rescind the contract. against the insurer.

Facts: 2. Concealment exists where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it to the assured,
A contract of group life insurance was executed between petitioner (Grepalife) and but he designedly and intentionally withholds the same. Also, medical findings were not
Development Bank of the Philippines. Dr. Wilfredo Leuterio, a physician and a housing debtor conclusive because Dr. Mejia, his attending physician, did not conduct an autopsy on the body
of DBP applied for membership in the group life insurance plan. In an application concerning of the decedent and that he had no knowledge of Dr. Leuterio’s any previous hospital
his health condition, he answered as: confinement.
"7. Have you ever had, or consulted, a physician for a heart condition, high
blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other The fraudulent intent on the part of the insured must be established to entitle the insurer to
physical impairment? rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an
Answer: No. If so give details ___________. affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer.
8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No." However, we noted that the Court of Appeals' decision was promulgated on May 17, 1993. In
Afterwards, Dr. Leuterio died due to “massive cerebral hemorrhage”. Consequently, DBP private respondent's memorandum, she states that DBP foreclosed in 1995 their residential
submitted a death claim to Grepalife, which was denied by the latter claiming that Leuterio lot, in satisfaction of mortgagor's outstanding loan. Considering this supervening event, the
was not physically healthy when he applied for an insurance coverage. Also, that he did not insurance proceeds shall inure to the benefit of the heirs of the deceased person or his
disclose he had been suffering from hypertension, which caused his death. Allegedly, such beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the expense of
non-disclosure constituted concealment that justified the denial of the claim. another (Nemo cum alterius detrimenio protest).
The widow then filed against Grepalife for “Specific Performances with Damages.”


warranted a medical examination of the insured by petitioner in order for it to reasonably
36. SUN LIFE ASSURANCE CO. OF CANADA VS CA GR 105135 (1995) assess the risk involved in accepting the application.

Good faith is no defense in concealment, S26 of Insurance Code is explicit in requiring a In Vda. de Canilang v. Court of Appeals , 223 SCRA 443 (1993), we held that materiality of the
party to a contract of insurance to communicate to the other, in good faith, all facts within his information withheld does not depend on the state of mind of the insured. Neither does it
knowledge which are material to the contract and as to which he makes no warranty, and which depend on the actual or physical events which ensue. Thus, "good faith" is no defense in
the other has no means of ascertaining. Said Section provides: "A neglect to communicate that concealment. The insured's failure to disclose the fact that he was hospitalized for two weeks
which a party knows and ought to communicate, is called concealment. prior to filling his application for insurance, raises grave doubts about his bonafides. It
appears that such concealment was deliberate on his part.
Facts:
The argument, that petitioner's waiver of the medical examination of the insured debunks the
On April 15, 1986, Robert John Bacani procured a life insurance contract for himself from materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v.
petitioner for a value of P100,000.00 with double indemnity in case of accidental death. On Philippine American Life Insurance Company, 7 SCRA 316 (1963), that "x x x the waiver
June 26, 1987, the insured died in a plane crash. Thus, a claim was filed. of a medical examination [in a non-medical insurance contract] renders even more material
the information required of the applicant concerning previous condition of health and
Petitioner conducted an investigation and the finding prompted it to reject the claim because diseases suffered, for such information necessarily constitutes an important factor which the
the insured did not disclose material facts relevant to the insurance of the policy, thus insurer takes into consideration in deciding whether to issue the policy or not x x x."
rendering the contract of insurance voidable. Petitioner claimed that the insured gave false Moreover, such argument of private respondents would make Section 27 of the Insurance
statements in his application. Petitioner was able to discover that 2 weeks prior to his Code, which allows the injured party to rescind a contract of insurance where there is
application for insurance, the insured was examined and confined at the Lung Center of the concealment, ineffective.
Philippines, where he was diagnosed with renal failure.
Anent the finding that the facts concealed had no bearing to the cause of death of the insured,
Trial Court and CA concluded that the facts concealed by the insured were made in good faith it is well settled that the insured need not die of the disease he had failed to disclose to the
and under the belief that they need not be disclosed. Moreover, it held that the health history insurer. It is sufficient that his nondisclosure misled the insurer in forming his estimates of
of the insured was immaterial since the insurance policy was “non-medical.” It also stressed the risks of the proposed insurance policy or in making inquiries.
that petitioner cannot avoid its obligation by claiming concealment because the cause of death
was unrelated to the facts concealed by the insured. We, therefore, rule that petitioner properly exercised its right to rescind the contract of
insurance by reason of the concealment employed by the insured. It must be emphasized that
Issue: rescission was exercised within the two-year contestability period as recognized in Section 48
of The Insurance Code.
In rightful exercise of rescission, Can petitioner reject the claim on the ground of
concealment? Petition is GRANTED. Decision of CA is REVERSED and set aside.

Ruling:
37. (REFER TO CASE #6) PHILAMCARE HEALTH SYSTEMS INC. VS CA 379 SCRA 356
Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are material to Issues:
the contract and as to which he makes no warranty, and which the other has no means of
ascertaining. Said Section provides: 1. Whether or not there was concealment on the part of the respondent’s husband.
2. Whether or not the petitioner is entitled to rescind the contract of insurance due to the
"A neglect to communicate that which a party knows and ought to communicate, is called concealment.
concealment."
Ruling:
Materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom communication is due, in forming his estimate NO. Petitioner argues that respondent's husband concealed a material fact in his application.
of the disadvantages of the proposed contract or in making his inquiries (The Insurance Code, The answer assailed by petitioner was in response to the question relating to the medical
Sec 31). history of the applicant. This largely depends on opinion rather than fact, especially coming
from respondent's husband who was not a medical doctor. Where matters of opinion or
-The terms of the contract are clear. The insured is specifically required to disclose to the judgment are called for, answers made in good faith and without intent to deceive will not
insurer matters relating to his health.The matters concealed would have definitely affected avoid a policy even though they are untrue. Thus, "(A)lthough false, a representation of the
petitioner's action on his application, either by approving it with the corresponding expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if
adjustment for a higher premium or rejecting the same. Moreover, a disclosure may have


there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate ü Great Pacific had waived its right to inquire into the health condition of the
of premium, and this is likewise the rule although the statement is material to the risk, if the applicant by the issuance of the policy despite the lack of answers to "some of the
statement is obviously of the foregoing character, since in such case the insurer is not justified pertinent questions" in the insurance application;
in relying upon such statement, but is obligated to make further inquiry. ü There was no intentional concealment on the part of the insured Jaime Canilang as
he had thought that he was merely suffering from a minor ailment and simple cold;
There is a clear distinction between such a case and one in which the insured is fraudulently 10 and
and intentionally states to be true, as a matter of expectation or belief, that which he then ü Batas Pambansa Blg. 847 which voids an insurance contract, whether or not
knows, to be actually untrue, or the impossibility of which is shown by the facts within his concealment was intentionally made, was not applicable to Canilang's case as that
knowledge, since in such case the intent to deceive the insurer is obvious and amounts to law became effective only on 1 June 1985.
actual fraud." The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract. Concealment as a defense for the health care provider or Decision of the Court of Appeals:
insurer to avoid liability is an affirmative defense and the duty to establish such defense by ü Reversed and set aside the decision of the Insurance Commissioner
satisfactory and convincing evidence rests upon the provider or insurer. ü The Court of Appeals also found that the failure of Jaime Canilang to disclose
previous medical consultation and treatment constituted material information
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a which should have been communicated to Great Pacific to enable the latter to make
contract of insurance." The right to rescind should be exercised previous to the proper inquiries.
commencement of an action on the contract. In this case, no rescission was made. Besides, the
cancellation of health care agreements as in insurance policies require the concurrence of the Issue: Whether or not Jaime Canilang “intentionally” made material concealment in
following conditions: stating his state of health;

1. Prior notice of cancellation to insured; Ruling:
2. Notice must be based on the occurrence after effective date of the policy of one or more of
the grounds mentioned; YES, IT IS MATERIAL.
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy; The relevant statutory provisions as they stood at the time Great Pacific issued the contract of
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon insurance and at the time Jaime Canilang died, are set out in P.D. No. 1460, also known as the
request of insured, to furnish facts on which cancellation is based. Insurance Code of 1978. Under the Insurance Code of 1978, it states the following:
None of the above pre-conditions was fulfilled in this case. Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is
called a concealment.
Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith, all
38. VDA DE CANILANG VS CA GR 92492 (1993) factors within his knowledge which are material to the contract and as to which he makes no
warranty, and which the other has not the means of ascertaining. (Emphasis supplied)
The nature of the facts not conveyed to the insurer was such that the failure to communicate
must have been intentional rather than merely inadvertent. Under the foregoing provisions, the information concealed must be information which the
concealing party knew and "ought to [have] communicate[d]," that is to say, information
Facts: which was "material to the contract." The test of materiality is contained in Section 31 of the
Insurance Code of 1978 which reads:
Jaime Canilang consulted Dr. Claudio and was diagnosed as suffering from “sinus
tachycardia”. The doctor prescribed the following for him: Trazepam, a tranquilizer; and Sec. 31. Materially is to be determined not by the event, but solely by the probable and
Aptin, a beta-blocker drug. Mr. Canilang consulted the same doctor again and this time was reasonable influence of the facts upon the party to whom the communication is due, in
found to have "acute bronchitis." On the next day, he applied for a “non-medical” insurance forming his estimate of the disadvantages of the proposed contract, or in making his inquiries.
policy with respondent Great Pacific Life Assurance Company naming his wife, Thelma (Emphasis supplied)
Canilang, as his beneficiary. Thereafter, Jaime Canilang died of "congestive heart failure,"
"anemia," and "chronic anemia." We agree with the Court of Appeals that the information which Jaime Canilang failed to
disclose was material to the ability of Great Pacific to estimate the probable risk he presented
Petitioner, widow and beneficiary of the insured, filed a claim with Great Pacific however the as a subject of life insurance. Had Canilang disclosed his visits to his doctor, the diagnosis
insurer denied upon the ground that the insured had concealed material information from it. made and medicines prescribed by such doctor, in the insurance application, it may be
reasonably assumed that Great Pacific would have made further inquiries and would have
Decision of the Insurance Commissioner: probably refused to issue a non-medical insurance policy or, at the very least, required a
ü The ailment of Jaime Canilang was not so serious that even if it had been disclosed, higher premium for the same coverage.
it would not affected Great Pacific’s decision to insure him.


The materiality of the information withheld by Great Pacific did not depend upon the state of
mind of Jaime Canilang. A man's state of mind or subjective belief is not capable of proof in On October 30, 1997 Philam Plans issued Pension Plan Agreement to Manuel, with petitioner
our judicial process, except through proof of external acts or failure to act from which Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly
inferences as to his subjective belief may be reasonably drawn. Neither does materiality premiums.9
depend upon the actual or physical events which ensue. Materiality relates rather to the
"probable and reasonable influence of the facts" upon the party to whom the communication Eleven months later or on September 15, 1998, Manuel died of blood poisoning.
should have been made, in assessing the risk involved in making or omitting to make further Subsequently, Lourdes filed a claim with Philam Plans for the payment of the benefits under
inquiries and in accepting the application for insurance; that "probable and reasonable her husband’s plan.10 Because Manuel died before his pension plan matured and his wife was
influence of the facts" concealed must, of course, be determined objectively, by the judge to get only the benefits of his life insurance, Philam Plans forwarded her claim to Philam
ultimately. Life.11

The insurance Great Pacific applied for was a "non-medical" insurance policy. On May 3, 1999 Philam Plans wrote Lourdes declining her claim. Philam Life found that
Saturnino v. Philippine-American Life Insurance Company: ". . if anything, the waiver of Manuel was on maintenance medicine for his heart and had an implanted pacemaker. Further,
medical examination [in a non-medical insurance contract] renders even more material the he suffered from diabetes mellitus and was taking insulin. Lourdes renewed her demand for
information required of the applicant concerning previous condition of health and diseases payment under the plan13 but Philam Plans rejected it,14prompting her to file the present
suffered, for such information necessarily constitutes an important factor which the insurer action against the pension plan company before the RTC of QC.15
takes into consideration in deciding whether to issue the policy or not . . . ."
On March 30, 2006 the RTC ruled that Manuel was not guilty of concealing the state of his
In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such health from his pension plan application; ordered Philam Plans, Perla and Ma. Celeste,
that the failure to communicate must have been intentional rather than merely inadvertent. solidarily, to pay Lourdes all the benefits from her husband’s pension plan,
For Jaime Canilang could not have been unaware that his heart beat would at times rise to namely: P997,050.00, the proceeds of his term insurance, and P2,890,000.00 lump sum
high and alarming levels and that he had consulted a doctor twice in the two (2) months pension benefit upon maturity of his plan; P100,000.00 as moral damages; and to pay the
before applying for non-medical insurance. Indeed, the last medical consultation took place costs of the suit.
just the day before the insurance application was filed. In all probability, Jaime Canilang went
to visit his doctor precisely because of the discomfort and concern brought about by his On December 18, 2007, CA reversed the RTC decision,17 holding that insurance policies are
experiencing "sinus tachycardia." traditionally contracts uberrimae fidae or contracts of utmost good faith. It required Manuel
to disclose conditions affecting the risk of which he was aware or material facts that he knew
We find it difficult to take seriously the argument that Great Pacific had waived inquiry into or ought to know.18
the concealment by issuing the insurance policy notwithstanding Canilang's failure to set out
answers to some of the questions in the insurance application. Such failure precisely Issues:
constituted concealment on the part of Canilang.
1. Whether Manuel is guilty of concealing his illness when he kept blank and did not answer
questions in his pension plan application.
39. FLORENDO VS PHILAM PLANS GR 186983 (2012) 2. Whether Manuel was bound by the failure of Perla and Ma. Celeste to declare the condition
of Manuel’s health.
Facts: 3. Whether Philam Plans’ approval of Manuel’s pension plan application and acceptance of his
premium payments precluded it from denying Lourdes’ claim.
On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan
with respondent Philam Plans, Inc. (Philam Plans) after some convincing by respondent Perla Ruling:
Abcede. The plan had a pre-need price of P997,050.00, payable in 10 years, and had a
maturity value of P2,890,000.00 after 20 years.1 Manuel signed the application and left to 1. YES. Lourdes contends that Philam Plans should have returned the application to him for
Perla the task of supplying the information needed in the application.2Respondent Ma. Celeste completion. Since it approved the application just as it was, it cannot cry concealment on
Abcede, Perla’s daughter, signed the application as sales counselor.3 Manuel’s part, that Philam Plans never queried Manuel directly regarding the state of his
health.
The comprehensive pension plan also provided life insurance coverage to Florendo.4This was
covered by a Group Master Policy that Philam Life issued to Philam Plans.5 Under the master Since Philam Plans waived medical examination for Manuel, it had to rely largely on his
policy, Philam Life was to automatically provide life insurance coverage, including accidental stating the truth regarding his health in his application. He knew more than anyone that he
death, to all who signed up for Philam Plans’ comprehensive pension plan.6 If the plan holder had been under treatment for heart condition and diabetes for more than five years preceding
died before the maturity of the plan, his beneficiary was to instead receive the proceeds of the his application. But he kept those crucial facts from Philam Plans.
life insurance, equivalent to the pre-need price. Further, the life insurance was to take care of
any unpaid premium until the pension plan matured, entitling the beneficiary to the maturity When Manuel signed the application, he adopted as his own the written
value of the pension plan.7 representations and declarations embodied in it. It is clear from these representations


that he concealed his chronic heart ailment and diabetes from Philam Plans. The The incontestability clause precludes the insurer from disowning liability under the policy it
pertinent portion of his representations and declarations read as follows: issued on the ground of concealment or misrepresentation regarding the health of the insured
(c) I have never been treated for heart condition, high blood pressure, cancer, after a year of its issuance.
diabetes, lung, kidney or stomach disorder or any other physical impairment in the
last five years. Since Manuel died on the eleventh month following the issuance of his plan,36 the one
(d) I am in good health and physical condition. year incontestability period has not yet set in.
CA decision AFFIRMED.
Manuel signed the application without filling in the details regarding his continuing
treatments for heart condition and diabetes. The assumption is that he has never been treated
for the said illnesses in the last five years preceding his application. VIII. PERSONS ENTITLED TO RECOVER ON THE POLICY AND CONDITIONS TO RECOVERY
40. FGU INSURANCE CORPORATION VS CA GR 137775 (2005)
Lourdes insists that Perla, the soliciting agent, knew that Manuel had a pacemaker before he
signed up for the pension plan.23 But by its tenor, the responsibility for preparing the
application belonged to Manuel. Nothing in it implies that someone else may provide the It is a basic rule in insurance that the carelessness and negligence of the insured or his agents
information that Philam Plans needed. Manuel cannot sign the application and disown the constitute no defense on the part of the insurer; The rule presupposes that the loss occurred due
responsibility for having it filled up. If he furnished Perla the needed information and to the causes which could not have been prevented by the insured despite the exercise of due
delegated to her the filling up of the application, then she acted on his instruction, not on diligence. (sayang kaayo ang mga beer nalunod :D)
Philam Plans’ instruction. Manuel still had his pacemaker when he applied for a pension plan
and it is an admission that he remained under treatment for irregular heartbeat within five Facts:
years preceding that application.
Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was engaged
in the shipping business operating two common carriers: M/T ANCO tugboat and D/B Lucio
Manuel had been taking medicine when he submitted his pension plan application. These
barge (which has no engine of its own, it could not maneuver by itself and had to be towed by
clearly fell within the five-year period. It is not claimed that Perla was aware of his two other
afflictions that needed medical treatments. Pursuant to Section 27 of IC, Manuel’s a tugboat for it to move from one place to another).
concealment entitles Philam Plans to rescind its contract of insurance with him.
On September 23 1979, San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on
2. Lourdes contends that the mere fact that Manuel signed the application in blank and let board the D/B Lucio, for towage by M/T ANCO:
Perla fill in the details did not make her his agent and bind him to her concealment of his true
state of health. There is no evidence of collusion between them. - 25,000 cases Pale Pilsen and 350 cases Cerveza Negra - consignee SMC’s Beer Marketing
Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo; and
Manuel, in signing the pension plan application, he certified that he wrote all the - 15,000 cases Pale Pilsen and 200 cases Cerveza Negra - consignee SMC’s BMD-San Jose Beer
information stated in it or had someone do it under his direction. Assuming that it was Sales Office, San Jose, Antique
Perla who filled up the application form, Manuel is still bound by what it contains since he
certified that he authorized her action. Philam Plans had every right to act on the faith of On September 30, 1979, D/B Lucio was towed when the M/T ANCO arrived. M/T ANCO left
that certification. Manuel was made aware when he signed the pension plan application that, the barge immediately due to the dark clouds and big waves. SMC’s District Sales Supervisor,
in granting the same, Philam Plans and Philam Life were acting on the truth of the Fernando Macabuag, requested ANCO’s representative to transfer the barge to a safer place
representations contained in that application. but it refused. Around midnight, the barge sunk along with 29,210 cases of Pale Pilsen and
500 cases of Cerveza Negra totalling to P1,346,197.
Manuel, a civil engineer and manager of a construction company, could be expected to
know that one must read every document, especially if it creates rights and obligations When SMC claimed against ANCO it stated that they agreed that it would not be liable for any
affecting him, before signing the same. It could reasonably be expected that he would not losses or damages resulting to the cargoes by reason of fortuitous event and it was agreed to
trifle with something that would provide additional financial security to him and to his wife in be insured with FGU for 20,000 cases or P858,500. ANCO filed against FGU.
his twilight years.
FGU alleged that ANCO and SMC failed to exercise ordinary diligence or the diligence of a good
3. Lourdes contends that any defect or insufficiency in the information provided by his father of the family in the care and supervision of the cargoes.
pension plan application should be deemed waived after the same has been approved, the
RTC held that ANCO is liable to SMC for the amount of the lost shipment, and FGU liable for
policy has been issued, and the premiums have been collected. 34
53% of the lost cargoes inasmuch as there was partial loss of only P1,346,197.00. CA affirmed.
The Court cannot agree. The comprehensive pension plan that Philam Plans issued
contains a one-year incontestability period.


Issue:
41. BONIFACIO BROS. INC. VS MORA GR L-20853 (1967)
Whether FGU should be exempted from liability to ANCO for the lost cargoes because of a
fortuitous event and negligence of ANCO. Facts:

Ruling: Enrique Mora, owner of Oldsmobile sedan model 1956, mortgaged it to H.S. Reyes, Inc., with
the condition that they would be the beneficiary of its insurance. On June 23, 1959, the sedan
YES. Affirmed with modification. Third-party complainant is dismissed. was insured with State Bonding & Insurance Co., Inc

In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was it During the period of effectivity, the sedan met an accident and it was appraised by Bayne
unavoidable. In fact, the other vessels in the port of San Jose, Antique, managed to transfer to Adjustment Co. and repaired it with Bonifacio Bros. and the parts were supplied by Ayala
another place, a circumstance which prompted SMCs District Sales Supervisor to request that Auto Parts Co. This was all done without the knowledge of H.S. Reyes. Enrique was billed
the D/B Lucio be likewise transferred, but to no avail. The D/B Lucio had no engine and could P2,102.73 through Bayne. The insurance company drew a check deducting P100 for franchise
not maneuver by itself. Even if ANCOs representatives wanted to transfer it, they no longer and entrusted it to Bayne payable to Enrique or H.S. Reyes. Still unpaid, the sedan was
had any means to do so as the tugboat M/T ANCO had already departed, leaving the barge to delivered to Enrique without the Knowledge of H.S. Reyes.
its own devices. The captain of the tugboat should have had the foresight not to leave the
barge alone considering the pending storm. Bonifacio Bros and Ayala Auto filed in the MTC on the theory that the insurance proceeds
should be paid directly to them CFI affirmed MTC: H.S. Reyes, Inc. as having a better right.
While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural disaster,
ANCO could not escape liability to respondent SMC. The records clearly show the failure of
petitioners representatives to exercise the extraordinary degree of diligence mandated by Issue:
law. To be exempted from responsibility, the natural disaster should have been the proximate WON there is privity between Bonifacio Bro and Ayala Auto against the insurance company.
and only cause of the loss. There must have been no contributory negligence on the part of the
common carrier. Therefore, as correctly pointed out by the appellate court, there was blatant
negligence on the part of M/T ANCOs crewmembers, first in leaving the engine-less barge D/B Ruling:
Lucio at the mercy of the storm without the assistance of the tugboat, and again in failing to
heed the request of SMCs representatives to have the barge transferred to a safer place, as NO. Judgment affirmed.
was done by the other vessels in the port; thus, making said blatant negligence the proximate
cause of the loss of the cargoes. GR: contracts take effect only between the parties thereto
Exc: some specific instances provided by law where the contract contains some stipulation in
We now come to the issue of whether or not FGU can be held liable under the insurance policy favor of a third person - stipulation pour autrui (provision in favor of a third person not a
to reimburse ANCO for the loss of the cargoes despite the findings of the respondent court party to the contract.)
that such loss was occasioned by the blatant negligence of the latters employees. One of the
purposes for taking out insurance is to protect the insured against the consequences of his Third person is allowed to avail himself of a benefit granted to him by the terms of the
own negligence and that of his agents. Thus, it is a basic rule in insurance that the contract, provided that the contracting parties have clearly and deliberately conferred a favor
carelessness and negligence of the insured or his agents constitute no defense on the part of upon such person. Stipulation pour autrui must be clearly expressed, which is wanting here.
the insurer. This rule however presupposes that the loss has occurred due to causes which
could not have been prevented by the insured, despite the exercise of due diligence. The "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S.
Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to benefit. The
The question now is whether there is a certain degree of negligence on the part of the insured stipulation merely establishes the procedure that the insured has to follow in order to be
or his agents that will deprive him the right to recover under the insurance contract. When entitled to indemnity for repair.
evidence show that the insured’s negligence or recklessness is so gross as to be sufficient to
constitute a willful act, the insurer must be exonerated. This Court does not find any reason to A policy of insurance is a distinct and independent contract between the insured and insurer,
deviate from the conclusion drawn by the lower court, as sustained by the Court of Appeals, and third persons have no right either in a court of equity, or in a court of law, to the proceeds
that ANCOs representatives had failed to exercise extraordinary diligence required of of it, unless there be some contract of trust, expressed or implied between the insured and
common carriers in the shipment of SMCs cargoes. Such blatant negligence being the third person.
proximate cause of the loss of the cargoes amounting to One Million Three Hundred Forty-Six
Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00). Taking into account the "loss" in insurance law embraces injury or damage:
circumstances present in the instant case, concludes that the blatant negligence of ANCOs The injury or damage sustained by the insured in consequence of the happening of one or
employees is of such gross character that it amounts to a wrongful act which must exonerate more of the accidents or misfortune against which the insurer, in consideration of the
FGU from liability under the insurance contract. premium, has undertaken to indemnify the insured.


42. THE INSULAR LIFE ASSURANCE VS EBRADO 80 SCRA 181 Article 2011 of the New Civil Code states: "The contract of insurance is governed by special
laws. Matters not expressly provided for in such special laws shall be regulated by this Code."
Facts:
When not otherwise specifically provided for by the Insurance Law, the contract of life
On 1 September 1968, Buenaventura Cristor Ebrado was issued by the Insular Life Assurance insurance is governed by the general rules of the civil law regulating contracts. And under
Co., Ltd., Policy 009929 on a whole-life plan for P5,882.00 with a rider for Accidental Death Article 2012 of the same Code, "any person who is forbidden from receiving any donation
Benefits for the same amount. Buenaventura C. Ebrado designated Carponia T. Ebrado as the under Article 739 cannot be named beneficiary of a life insurance policy by the person who
revocable beneficiary in his policy. He referred to her as his wife. On 21 October 1969, cannot make a donation to him." Common-law spouses are, definitely, barred from receiving
Buenventura C. Ebrado died as a result of an accident when he was hit by a falling branch of a donations from each other.
tree. As the insurance policy was in force, Insular Life stands liable to pay the coverage of the
policy in an amount of P11,745.73, representing the face value of the policy in the amount of Article 739 of the new Civil Code provides that "the following donations shall be void: (1)
P5,882.00 plus the additional benefits for accidental death also in the amount of P5,882.00 Those made between persons who were guilty of adultery or concubinage at the time of
and the refund of P18.00 paid for the premium due November, 1969, minus the unpaid donation; (2) Those made between persons found guilty of the same criminal offense, in
premiums and interest thereon due for January and February, 1969, in the sum of P36.27. consideration thereof; (3) Those made to a public officer or his wife, descendants or
ascendants by reason of his office. In the case referred to in No. 1, the action for declaration of
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the policy as the nullity may be brought by the spouse of the donor or donee; and the guilt of the donee may be
designated beneficiary therein, although she admits that she and the insured Buenaventura C. proved by preponderance of evidence in the same action." In essence, a life insurance policy is
Ebrado were merely living as husband and wife without the benefit of marriage. Pascuala Vda. no different from a civil donation insofar as the beneficiary is concerned. Both are founded
de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is upon the same consideration: liberality.
the one entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado. In
doubt as to whom the insurance proceeds shall be paid, the insurer commenced an action for A beneficiary is like a donee, because from the premiums of the policy which the insured pays
Interpleader before the Court of First Instance of Rizal on 29 April 1970. On 25 September out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a
1972, the trial court rendered judgment declaring, among others, Carponia T. Ebrado consequence, the proscription in Article 739 of the new Civil Code should equally operate in
disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and life insurance contracts. The mandate of Article 2012 cannot be laid aside: any person who
directing the payment of the insurance proceeds to the estate of the deceased insured. From cannot receive a donation cannot be named as beneficiary in the life insurance policy of the
this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on 11 July 1976, the person who cannot make the donation.
Appellate Court certified the case to the Supreme Court as involving only questions of law.
Under American law, a policy of life insurance is considered as a testament and in construing
Issues: it, the courts will, so far as possible treat it as a will and determine the effect of a clause
designating the beneficiary by rules under which wills are interpreted. Policy considerations
1. Whether a common-law wife named as beneficiary in the life insurance policy of a legally and dictates of morality rightly justify the institution of a barrier between common-law
married man can claim the proceeds thereof in case of death of the latter. spouses in regard to property relations since such relationship ultimately encroaches upon
2. Whether a conviction for adultery or concubinage is exacted before the disabilities the nuptial and filial rights of the legitimate family. There is every reason to hold that the bar
mentioned in Article 739 may effectuate. in donations between legitimate spouses and those between illegitimate ones should be
enforced in life insurance policies since the same are based on similar consideration. As
Ruling: pointed out, a beneficiary in a life insurance policy is no different from a donee. Both the
recipients of pure beneficence. So long as marriage remains the threshold of family laws,
1. NO. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new reason and morality dictate that the impediments imposed upon married couple should
Insurance Code (PD 612, as amended) does not contain any specific provision grossly likewise be imposed upon extra-marital relationship. If legitimate relationship is
resolutory of the prime question at hand. circumscribed by these legal disabilities, with more reason should an illicit relationship be
restricted by these disabilities.
Section 50 of the Insurance Act which provides that "(t)he insurance shall be applied
exclusively to the proper interest of the person in whose name it is made" cannot be validly 2. NO. A conviction for adultery or concubinage is not exacted before the disabilities
seized upon to hold that the same includes the beneficiary. The word "interest" highly mentioned in Article 739 may effectuate. More specifically, with regard to the disability on
suggests that the provision refers only to the insured and not to the beneficiary, since a "persons who were guilty of adultery or concubinage at the time of the donation," Article 739
contract of insurance is personal in character. Otherwise, the prohibitory laws against illicit itself provides that "In the case referred to in No. 1, the action for declaration of nullity may be
relationships especially on property and descent will be rendered nugatory, as the same could brought by the spouse of the donor or donee; and the guilt of the donee may be proved by
easily be circumvented by modes of insurance. Rather, the general rules of civil law should be preponderance of evidence in the same action."
applied to resolve this void in the Insurance Law.
The underscored clause neatly conveys that no criminal conviction for the disqualifying
offense is a condition precedent. In fact, it cannot even be gleaned from the aforequoted


provision that a criminal prosecution is needed. On the contrary, the law plainly states that The trial court rendered decision giving the petitioners ½ of the retirement benefit the
the guilt of the party may be proved "in the same action" for declaration of nullity of donation. amount of P3,152.235 and the other half to Rosario Diaz. Still unsatisfied with the decision
And, it would be sufficient if evidence preponderates upon the guilt of the consort for the hence, the present appeal.
offense indicated. The quantum of proof in criminal cases is not demanded.
Issue:
Herein, the requisite proof of common- law relationship between the insured and the
beneficiary has been conveniently supplied by the stipulations between the parties in the pre- In the absence of designated beneficiaries, are the petitioners being the assigned beneficiaries
trial conference of the case. It was agreed upon and stipulated therein that the deceased in the life insurance policy, also the beneficiaries in the retirement insurance policy?
insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six
legitimate children; that during his lifetime, the deceased insured was living with his Ruling:
common-law wife, Carponia Ebrado, with whom he has two children. These stipulations are
nothing less than judicial admissions which, as a consequence, no longer require proof and No. The beneficiary named in the life insurance does not automatically become the
cannot be contradicted. A fortiori, on the basis of these admissions, a judgment may be validly beneficiary in the retirement insurance. At the time the deceased designated his life insurance
rendered without going through the rigors of a trial for the sole purpose of proving the illicit beneficiaries, the provisions establishing a system for retirement benefits has yet to be
liaison between the insured and the beneficiary. effected. Thus, when Jose, before or during the early part of 1943, could not have intended
those beneficiaries of his life insurance as also the beneficiaries of his retirement insurance
because the provisions on retirement insurance under the GSIS came about only when CA 186
43. VDA DE CONSUEGRA VS GSIS 37 SCRA 315 was amended by RA 660 on June 18, 1951.

Facts: Sec. 11(b) of CA 186 as amended by RA 660 clearly indicated that there is a need for the
employee to file an application for retirement insurance benefits when he becomes a GSIS
The late Jose Consuegra, at the time of his death, was employed as a shop foreman of the office member and to state his beneficiary. The life insurance and the retirement insurance are two
of the District Engr. in the province of Surigao del Norte. He contracted two marriages, the separate and distinct systems of benefits paid out from separate and distinct funds. In case of
first with herein respondent Rosario Diaz which marriage were born two children and both failure to name a beneficiary in an insurance policy, the proceeds will accrue to the estate of
predeceased their father and the second which was contracted in good faith while the first the insured and when there exists two marriages, each family will be entitled to ½ of the
marriage was subsisting, with herein petitioner Basilia Berdin, out of which marriage were estate. Thus, the respondent GSIS has correctly acted when it ruled that the proceeds of the
born seven children. retirement insurance of the late Jose Consuegra should divided equally between his first living
wife Rosario on the one hand, and his second wife Basilia and her children, on the other.
Being a member of the GSIS when Consuegra died in 1965, the proceeds of his life insurance
were paid to petitioner Basilia Berdin and her children who were the beneficiaries named in
the policy. Jose Consuegra has been in service for 22.5028 years thus, he was entitled to the 44. ASIAN TERMINALS, INC. VS MALAYAN INSURANCE CO. INC. GR 171406 (2011)
retirement insurance benefits in the sum of P6,304.47 pursuant to Sec. 12(c) of
Commonwealth Act 186 as amended by RA 1616 and 3836. The deceased did not designate If there is no issue with the validity of the insurance contract or policy, non-presentation of it
any beneficiary who would receive the retirement insurance benefits due to him. during trial is not fatal to prove the cause of action.

The first wife, Rosario Diaz filed a claim with the GSIS asking that the retirement insurance Facts:
benefits be paid to her as the only legal heir of Consuegra. Petitioner and her children,
likewise, filed a similar claim with the GSIS. Revolving the conflicting claims, GSIS ruled that A certain shipment, containing plastic bag of soda ash dense, was insured with respondent
the legal heirs of the late Jose Consuegra were Rosario Diaz, his widow by his first marriage Malayan Insurance Company, Inc. Upon arrival of the vessel at Pier 9, South Harbor, Manila,
who is entitled to 1/2, or 8/16, of the retirement insurance benefits, on the one hand; and the stevedores of petitioner Asian Terminals, Inc. When the unloading of the bags was
Basilia Berdin and her children who are entitled to the remaining 1/2, or 8/15, each of them completed on November 28, 1995, 2,702 bags were found to be in bad order condition.
to receive an equal share of 1/16.
On December 28, 1995, after all the bags were unloaded in the warehouses of the consignee, a
Dissatisfied with the ruling, Basilia and her children filed a petition for mandamus with total of 2,881 bags were in bad order condition due to spillage, caking, and hardening of the
preliminary injunction naming as respondents the GSIS, the Commissioner of Public contents.
Highways, the Highway District Engr. of Surigao del Norte, Commissioner of Civil Service and
Rosario Diaz, praying that the petitioners be declared the legal heirs and exclusive On April 19, 1996, Malayan, as insurer, paid the value of the lost/damaged cargoes to the
beneficiaries of the retirement insurance of the late Jose and a writ of preliminary injunction consignee. Respondent filed a complaint for damages against the Petitioner.
be issued restraining implementation of the adjudication made by the GSIS.
Petitioner contends that respondent has no cause of action because it failed to present the
insurance contract or policy covering the subject shipment. Petitioner argues that the


Subrogation Receipt presented by respondent is not sufficient to prove that the subject Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE
shipment was insured and that respondent was validly subrogated to the rights of the MILLION ONLY (P3,000,000.00) as a loan without interest under Policy No. MH
consignee. 93/1353 [sic], repayable only in the event and to the extent that any net recovery is
made by Trans-Asia Shipping Corporation, from any person or persons, corporation or
Lower court favors Malayan insurance, it found that the proximate cause of the damage/loss corporations, or other parties, on account of loss by any casualty for which they may be
was the negligence of petitioner's stevedores who handled the unloading of the cargoes from liable occasioned by the 25 October 1993: Fire on Board. (Exhibit 4)
the vessel.
In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiffs claim (Exhibit 5).
Issue: The letter reads:

WON Malayan is entitled to the relief granted despite non-presentation of the insurance After a careful review and evaluation of your claim arising from the above-captioned
contract or policy during trial. incident, it has been ascertained that you are in breach of policy conditions, among
them WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. Accordingly, we regret
Ruling: to advise that your claim is not compensable and hereby DENIED.

Malayan is entitled to the relief. The SC said that non-presentation of the insurance contract Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint for Sum of
or policy is not fatal in the instant case. Money against PRUDENTIAL with the RTC of Cebu City, docketed as Civil Case No. CEB-20709,
wherein TRANS-ASIA sought the amount of P8,395,072.26 from PRUDENTIAL, alleging that
First of all, this was never raised as an issue before the RTC. In fact, it is not among the issues the same represents the balance of the indemnity due upon the insurance policy in the total
agreed upon by the parties to be resolved during the pre-trial. amount of P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per annum citing
Section 243 [6] of Presidential Decreee No. 1460, otherwise known as the Insurance Code, as
In this case, the presentation of the insurance contract or policy was not necessary. Although amended.
petitioner objected to the admission of the Subrogation Receipt in its Comment to
respondent's formal offer of evidence on the ground that respondent failed to present the Ruling of the Trial Court: Ruled in favor of PRUDENTIAL. The court a quo said that in
insurance contract or policy, a perusal of petitioner's Answer and Pre-Trial Brief shows that substance and in form, the same is a receipt for a loan. It held that if TRANS-ASIA intended to
petitioner never questioned respondent's right to subrogation, nor did it dispute the coverage receive the amount of P3,000,000.00 as advance payment, it should have so clearly stated as
of the insurance contract or policy. such.

Since there was no issue regarding the validity of the insurance contract or policy, or any Ruling of the Court of Appeals: It interpreted the transaction between PRUDENTIAL and
provision thereof, respondent had no reason to present the insurance contract or policy as TRANS-ASIA as one of subrogation, instead of a loan. The Court of Appeals concluded that
evidence during the trial. TRANS-ASIA has no obligation to pay back the amount of P3,000.000.00 to PRUDENTIAL
based on its finding that the aforesaid amount was PRUDENTIALs partial payment to TRANS-
ASIAs claim under the policy. Finally, the Court of Appeals denied TRANS-ASIAs prayer for
IX. CLAIMS SETTLEMENT AND SUBROGATION attorney’s fees, but held TRANS-ASIA entitled to double interest on the policy for the duration
45. PRUDENTIAL GUARANTEE VS TRANS-ASIA SHIPPING LINES GR 151890 (2006) of the delay of payment of the unpaid balance, citing Section 244 [13] of the Insurance Code.
Hence, the present petition.

A prima facie evidence of unreasonable delay in payment of the claim is created by failure of the
insurer to pay the claim within the time fixed in both Sections 242 and 243 of the Insurance Issues:
Code.

Facts: 1. Whether or not TRANS-ASIA violated and breached the policy condition on Warranted
Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of Vessel Classed and Class Maintained, as contained in the subject insurance contract.
payment of premiums, defendant [PRUDENTIAL] insured M/V Asia Korea for loss/damage of 2. Whether or not the Loan and Trust Receipt executed by the parties evidenced a loan of
the hull and machinery arising from perils, inter alia, of fire and explosion for the sum of P40 P3,000,000.00, and not an advance payment on the policy or a partial payment for the
Million, beginning [from] the period [of] July 1, 1993 up to July 1, 1994. This is evidenced by loss.
Marine Policy No. MH93/1363. On October 25, 1993, while the policy was in force, a fire 3. Whether or not there was an unreasonable delay by PRUDENTIAL in the payment of the
broke out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On October 26, unpaid balance of P8,395,072.26 to TRANS-ASIA.
1993 plaintiff [TRANS-ASIA] filed its notice of claim for damage sustained by the vessel.

On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated Loan and Trust
receipt, a portion of which read (sic):


Ruling: any net recovery is made by TRANS-ASIA from any person on account of loss occasioned by
the fire of 25 October 1993. The transaction, therefore, was made to benefit TRANS-ASIA,
such that, if no recovery from third parties is made, PRUDENTIAL cannot be repaid the
1. PRUDENTIAL was not successful in discharging the burden of evidence that
amount. Verily, the Court thinks that this is constitutive of a loan. The liberality in the tenor of
TRANS-ASIA breached the subject policy condition on Classed and Class
the Loan and Trust Receipt in favor of TRANS-ASIA leads to the conclusion that the amount of
Maintained.
P3,000,000.00 was a form of an advance payment on TRANS-ASIAs claim on MH93/1353.
TRANS-ASIA, necessarily has the burden of proof to show proof of loss, and the coverage
3. Yes, there was an unreasonable delay on the part of PRUDENTIAL to pay TRANS-
thereof, in the subject insurance policy. However, in the course of trial in a civil case, once
ASIA, as in fact, it refuted the latter’s right to the insurance claims, from the time
plaintiff makes out a prima facie case in his favor, the duty or the burden of evidence shifts to
proof of loss was shown and the ascertainment of the loss was made by the
defendant to controvert plaintiffs prima facie case, otherwise, a verdict must be returned in
insurance adjuster. Evidently, PRUDENTIALs unreasonable delay in satisfying
favor of plaintiff. TRANS-ASIA was able to establish proof of loss and the coverage of the loss,
TRANS-ASIAs unpaid claims compelled the latter to file a suit for collection.
i.e., 25 October 1993: Fire on Board. Thereafter, the burden of evidence shifted to
PRUDENTIAL to counter TRANS-ASIAs case, and to prove its special and affirmative defense
that TRANS-ASIA was in violation of the particular condition on CLASSED AND CLASS Sec. 244 of the Insurance Code grants damages consisting of attorney’s fees and other
MAINTAINED. expenses incurred by the insured after a finding by the Insurance Commissioner or the Court,
Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division, as the case may be, of an unreasonable denial or withholding of the payment of the claims
Lucio Fernandez, made a categorical admission that at the time of the procurement of the due. Moreover, the law imposes an interest of twice the ceiling prescribed by the Monetary
insurance contract in July 1993, TRANS-ASIAs vessel, M/V Asia Korea was properly classed by Board on the amount of the claim due the insured from the date following the time prescribed
Bureau Veritas. Lack of a certification in PRUDENTIALs records to the effect that TRANS- in Section 242 [35] or in Section 243, as the case may be, until the claim is fully satisfied.
ASIAs M/V Asia Korea was CLASSED AND CLASS MAINTAINED at the time of the occurrence Finally, Section 244 considers the failure to pay the claims within the time prescribed in
of the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact breached the Sections 242 or 243, when applicable, as prima facie evidence of unreasonable delay in
warranty contained in the policy. As admitted by PRUDENTIAL, it was likewise the payment.
responsibility of the average adjuster, Richards Hogg International (Phils.), Inc., to secure a
copy of such certification, and the alleged breach of TRANS-ASIA cannot be gleaned from the Section 244 does not require a showing of bad faith in order that attorney’s fees be granted.
average adjusters survey report, or adjustment of particular average per M/V Asia Korea of As earlier stated, under Section 244, a prima facie evidence of unreasonable delay in payment
the 25 October 1993 fire on board. of the claim is created by failure of the insurer to pay the claim within the time fixed in both
Sections 242 and 243 of the Insurance Code. As established in Section 244, by reason of the
delay and the consequent filing of the suit by the insured, the insurers shall be adjudged to
2. The real character of the transaction between the parties as evidenced by the Loan
pay damages which shall consist of attorney’s fees and other expenses incurred by the
and Trust Receipt is that of an advance payment by PRUDENTIAL of TRANS-ASIAs
insured.
claim on the insurance.

There was an unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of
First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the occurrence of the fire in
PRUDENTIAL, subrogating the former to the extent of any net recovery made by TRANS ASIA M/V Asia Korea, TRANS-ASIA filed its notice of claim. On 13 August 1996, the adjuster,
SHIPPING CORP., from any person or persons, corporation or corporations, or other parties, Richards Hogg International (Phils.), Inc., completed its survey report recommending the
on account of loss by any casualty for which they may be liable, occasioned by the 25 October amount of P11,395,072.26 as the total indemnity due to TRANS-ASIA. [38] On 21 April 1997,
1993: Fire on Board. PRUDENTIAL, in a letter addressed to TRANS-ASIA denied the latter’s claim for the amount of
P8,395,072.26 representing the balance of the total indemnity. On 21 July 1997, PRUDENTIAL
Second, the Loan and Trust Receipt, even as TRANS-ASIA agreed to promptly prosecute suit sent a second letter to TRANS-ASIA seeking a return of the amount of P3,000,000.00. On 13
against such persons, corporation or corporations through whose negligence the aforesaid August 1997, TRANS-ASIA was constrained to file a complaint for sum of money against
loss was caused or who may otherwise be responsible therefore, with all due diligence in its PRUDENTIAL praying, inter alia, for the sum of P8,395,072.26 representing the balance of the
name, the prosecution of the claims against such third persons are to be carried on at the proceeds of the insurance claim. Succinctly, an award equivalent to ten percent (10%) of the
expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND unpaid proceeds of the policy as attorneys fees to TRANS-ASIA is reasonable under the
ASSURANCE INC. The clear import of the phrase at the expense of and under the exclusive circumstances, or otherwise stated, ten percent (10%) of P8,395,072.26.
direction and control as used in the Loan and Trust Receipt grants solely to PRUDENTIAL the
power to prosecute, even as the same is carried in the name of TRANS-ASIA, thereby making
TRANS-ASIA merely an agent of PRUDENTIAL, the principal, in the prosecution of the suit
against parties who may have occasioned the loss.

Third, per the subject Loan and Trust Receipt, the obligation of TRANS-ASIA to repay
PRUDENTIAL is highly speculative and contingent, i.e., only in the event and to the extent that


X. DOUBLE INSURANCE Issues:
46. MALAYAN INSURANCE CO INC. VS PHILIPPINES FIRST INSURANCE CO. INC. AND
1. Whether Reputable is a private carrier;
REPUTABLE FORWARDER SERVICES GR 184300 (2012)
2. Whether Reputable is strictly bound by the stipulations in its contract of carriage with
Wyeth, such that it should be liable for any risk of loss or damage, for any cause whatsoever,
Facts: including that due to theft or robbery and other force majeure
3. Whether Reputable engaged in double insurance
Wyeth transacted with Reputable Forwarder Services to transport and deliver the former's

products to its customers, dealers or salesmen. Wyeth procured Marine Policy from
Ruling:
Philippine First insurance over its goods. The policy covers the risk of physical loss or damage
from any external cause, if by land, and provides a limit of P6M per any one land vehicle. 1. Yes, Reputable is a private carrier

When Wyeth executed its annual contract of carriage with Reputable, it was not signed by Under Article 1732 of the Civil Code, common carriers are persons, corporations, 5rms, or
Wyeth representatives although it was signed by Reputable. Thus, on February 11, 1994, associations engaged in the business of carrying or transporting passenger or goods, or both
Reputable signed a Special Risk Insurance Policy (SR Policy) with petitioner Malayan for the by land, water or air for compensation, offering their services to the public. On the other hand,
amount of P1,000,000.00. a private carrier is one wherein the carriage is generally undertaken by special agreement
and it does not hold itself out to carry goods for the general public. A common carrier
Reputable received from Wyeth 1,000 boxes of Promil infant formula worth P2.3M to be becomes a private carrier when it undertakes to carry a special cargo or chartered to a special
delivered by Reputable to Mercury Drug Corporation in Libis, Quezon City. On the same date, person only. For all intents and purposes, therefore, Reputable operated as a private/special
the truck carrying Wyeth's products was hijacked by about 10 armed men. carrier with regard to its contract of carriage with Wyeth.

Philippines First paid Wyeth. Philippines First then demanded reimbursement from 2. Reputable is bound by the terms of the contract of carriage.
Reputable, having been subrogated to the rights of Wyeth by virtue of the payment. The latter,
however, ignored the demand. The extent of a private carrier's obligation is dictated by the stipulations of a contract it
entered into, provided its stipulations, clauses, terms and conditions are not contrary to law,
Consequently, Philippines First instituted an action for sum of money against Reputable on morals, good customs, public order, or public policy.
the ground that it was a common carrier. In its answer, Reputable claimed that it is a private
carrier. It also claimed that it cannot be made liable under the contract of carriage with Wyeth Thus, being a private carrier, the extent of Reputable's liability is fully governed by the
since the contract was not signed by Wyeth's representative and that the cause of the loss was stipulations of the contract of carriage, one of which is that it shall be liable to Wyeth for the
force majeure, i.e., the hijacking incident. loss of the goods/products due to any and all causes whatsoever, including theft, robbery and
other force majeure while the goods/products are in transit and until actual delivery to
Reputable impleaded Malayan as a third-party defendant. However, Malayan argued that that Wyeth's customers, salesmen and dealers.
under Section 5 of the SR Policy, the insurance does not cover any loss or damage to property
which at the time of the happening of such loss or damage is insured by any marine policy and 3. There is no double insurance
that the SR Policy expressly excluded third-party liability.
In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity
RTC Ruling: of the SR Policy but simply limits the liability of Malayan only up to the excess of the amount
Malayan was found liable to Reputable to the extent of the policy coverage. that was not covered by the other insurance policy. In interpreting the "other insurance
Both Reputable and Malayan appealed. clause" in Geagonia, the Court ruled that the prohibition applies only in case of double
insurance. The Court ruled that in order to constitute a violation of the clause, the other
CA Ruling: insurance must be upon same subject matter, the same interest therein, and the same risk.
Reputable asserted that the RTC erred in holding that its contract of carriage with Wyeth was Thus, even though the multiple insurance policies involved were all issued in the name of the
binding despite Wyeth's failure to sign the same. same assured, over the same subject matter and covering the same risk, it was ruled that
there was no violation of the "other insurance clause" since there was no double insurance.
Malayan argued that inasmuch as there was already a marine policy issued by Philippines
First securing the same subject matter against loss and that since the monetary By the express provision of Section 93 of the Insurance Code, double insurance exists
coverage/value of the Marine Policy is more than enough to indemnify the hijacked cargo, where the same person is insured by several insurers separately in respect to the same
Philippines First alone must bear the loss. subject and interest. The requisites in order for double insurance to arise are as
follows:
CA sustained the RTC decision. 1. The person insured is the same;
Malayan filed a petition for review on certiorari to the SC. 2. Two or more insurers insuring separately;


3. There is identity of subject matter;
4. There is identity of interest insured; and Ruling:
5. There is identity of the risk or peril insured against
As to the first issue, the SC ruled in the negative.
In the present case, while it is true that the Marine Policy and the SR Policy were both issued In this jurisdiction, the limited liability rule is embodied in Articles 587, 590 and 837 under
over the same subject matter, i.e., goods belonging to Wyeth, and both covered the same peril Book III of the Code of Commerce:
insured against, it is, however, beyond cavil that the said policies were issued to two different
persons or entities. Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons
which arise from the conduct of the captain in the care of the goods which the vessel carried; but
he may exempt himself therefrom by abandoning the vessel with all her equipment and the
XI. REINSURANCE freightage he may have earned during the voyage.
Art. 590. The co-owners of a vessel shall be civilly liable, in the proportion of their contribution to
XII. MARINE INSURANCE
the common fund, for the results of the acts of the captain, referred to in Art. 587.
47. PHIL-NIPPON KYOEI, CORP. VS GUDELOSAO ET AL. GR 181375 (2016) Each part-owner may exempt himself from this liability by the abandonment before a notary of
the part of the vessel belonging to him. ATICcS
Facts: Art. 837. The civil liability incurred by the shipowners in the cases prescribed in this section, shall
be understood as limited to the value of the vessel with all its appurtenances and freightage
Petitioner, a domestic shipping corporation, purchased a "Ro-Ro" passenger/cargo vessel "MV earned during the voyage.
Mahlia" in Japan in February 2003. Edwin C. Gudelosao, Virgilio A. Tancontian, and six other
crewmembers were hired through the local manning agency of TMCL, Top Ever Marine However, the limited liability rule does not apply in cases: (1) where the injury or death to a
Management Philippine Corporation (TEMMPC). Phil-Nippon Kyoei secured a Marine passenger is due either to the fault of the shipowner, or to the concurring negligence of the
Insurance Policy (Maritime Policy No. 00001) from SSSICI over the vessel for P10,800,000.00 shipowner and the captain; (2) where the vessel is insured; and (3) in workmen's
against loss, damage, and third party liability or expense, arising from the occurrence of the compensation claims.
perils of the sea for the voyage of the vessel from Onomichi, Japan to Batangas, Philippines.
This Marine Insurance Policy included Personal Accident Policies for the eight crewmembers The claim for death benefits under the POEA-SEC is the same species as the workmen's
for P3,240,000.00 each in case of accidental death or injury. compensation claims under the Labor Code. They are both given when the employee dies due
to a work-related cause during the term of his contract. Both belong to a different realm from
On February 24, 2003, the vessel sank due to extreme bad weather condition. The heirs and that of Maritime Law. Therefore, the limited liability rule does not apply to petitioner's
beneficiaries of Gudelosao and Tancontian filed complaints for death benefits and other liability under the POEA-SEC. Even if petitioner is liable, the Release and Quitclaim executed
damages against Phil-Nippon Kyoei, TEMMPC, Capt. Orbeta, TMCL, and SSSICI with the by respondents in favor of TEMMPC and TMCL redounded to petitioner's benefit.
Arbitration branch of the NLRC.
As to the second issue, the SC also ruled in the affirmative.
LA: found all of them solidarily liable. Also found the SSCI liable for the proceeds of the The ruling of the CA makes petitioner's liability conditional upon SSSICI's payment of the
Personal Accident Policies. Liability of the petitioner shall be deemed extinguished only upon insurance proceeds. In doing so, the CA determined that the Personal Accident Policies are
SSSICI's payment of the insurance proceeds. casualty insurance, specifically one of liability insurance. The CA determined that petitioner,
as insured, procured from SSSICI the Personal Accident Policies in order to protect itself from
NLRC: absolved petitioner, TEMMPC and TMCL and Capt. Orbeta from any liability based on the consequences of the total loss of the vessel caused by the perils of the sea. The CA found
the limited liability rule; affirmed the liability of SSCI. that the liabilities insured against are all monetary claims, excluding the benefits under the
POEA-SEC, of respondents in connection with the sinking of the vessel.
CA: petitioner is liable for the injuries to passengers even without a determination of its fault
or negligence. It is for this reason that petitioner obtained insurance from SSSICI — to protect However, the SC ruled that while the Personal Accident Policies are casualty insurance, they
itself against the consequences of a total loss of the vessel caused by the perils of the sea. do not answer for petitioner's liabilities arising from the sinking of the vessel. It is an
Consequently, SSSICI's liability as petitioner's insurer directly arose from the contract of indemnity insurance procured by petitioner for the benefit of the seafarers. As a result,
insurance against liability. petitioner is not directly liable to pay under the policies because it is merely the policyholder
of the Personal Accident Policies.
Issues:
When the CA conditioned the extinguishment of petitioner's liability on SSSICI's payment of
1. Whether the doctrine of real and hypothecary nature of maritime law (also known as the the Personal Accident Policies' proceeds, it made a finding that petitioner is subsidiarily liable
limited liability rule) applies in favor of petitioner. for the face value of the policies. However, there is no obligation on the part of petitioner to
2. Whether the CA erred in ruling that the liability of petitioner is extinguished only upon pay the insurance proceeds because petitioner is, in fact, the obligee or policyholder in the
SSSICI's payment of insurance proceeds. Personal Accident Policies.


Petitioners contend that the implied warranty of seaworthiness provided for in the Insurance
48. ROQUE VS IAC 139 SCRA 596 Code refers only to the responsibility of the shipowner who must see to it that his ship is
reasonably fit to make in safety the contemplated voyage.
In marine cases, the risks insured against are "perils of the sea". The purpose of such insurance is
protection against contingencies and against possible damages and such a policy does not cover The petitioners state that a mere shipper of cargo, having no control over the ship, has
a loss or injury which must inevitably take place in the ordinary course of things. There is no nothing to do with its seaworthiness. They argue that a cargo owner has no control over the
doubt that the term 'perils of the sea' extends only to losses caused by sea damage, or by the structure of the ship, its cables, anchors, fuel and provisions, the manner of loading his cargo
violence of the elements, and does not embrace all losses happening at sea. and the cargo of other shippers, and the hiring of a sufficient number of competent officers
and seamen. The petitioners' arguments have no merit.
Facts:
There is no dispute over the liability of the common carrier Manila Bay. In fact, it did not
On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a common bother to appeal the questioned decision. However, the petitioners state that Manila Bay has
carrier, entered into a contract with the petitioners whereby the former would load and carry ceased operating as a firm and nothing may be recovered from it. They are, therefore, trying
on board its barge Mable 10 logs from Malampaya Sound, Palawan to North Harbor, Manila. to recover their losses from the insurer.
The petitioners insured the logs against loss for P100,000.00 with respondent Pioneer
Insurance and Surety Corporation (Pioneer). The liability of the insurance company is governed by law. Section 113 of the Insurance Code
provides:
On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at Malampaya In every marine insurance upon a ship or freight, or freightage, or upon any thing
Sound, Palawan for carriage and delivery to North Harbor, Port of Manila, but the shipment which is the subject of marine insurance, a warranty is implied that the ship is
never reached its destination because Mable 10 sank with the 811 pieces of logs somewhere seaworthy.
off Cabuli Point in Palawan on its way to Manila. As alleged by the petitioners in their
complaint and as found by both the trial and appellate courts, the barge where the logs were Section 99 of the same Code also provides in part.
loaded was not seaworthy such that it developed a leak. The appellate court further found Marine insurance includes:
that one of the hatches was left open causing water to enter the barge and because the barge (1) Insurance against loss of or damage to:
was not provided with the necessary cover or tarpaulin, the ordinary splash of sea waves (a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...
brought more water inside the barge.
From the above-quoted provisions, there can be no mistaking the fact that the term "cargo"
On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of can be the subject of marine insurance and that once it is so made, the implied warranty of
P150,000.00 for the loss of the shipment plus P100,000.00 as unrealized profits but the latter seaworthiness immediately attaches to whoever is insuring the cargo whether he be the
ignored the demand. Another letter was sent to respondent Pioneer claiming the full amount shipowner or not.
of P100,000.00 under the insurance policy but respondent refused to pay on the ground that
its liability depended upon the "Total loss by Total Loss of Vessel only". Hence, petitioners Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is
commenced Civil Case No. 86599 against Manila Bay and respondent Pioneer. After hearing, immaterial in ordinary marine insurance and may not be used by him as a defense in order to
the trial court found in favor of the petitioners. recover on the marine insurance policy.

Respondent Pioneer appealed to the Intermediate Appellate Court. According to the Since the law provides for an implied warranty of seaworthiness in every contract of ordinary
petitioners, the transportation company is no longer doing business and is without funds. marine insurance, it becomes the obligation of a cargo owner to look for a reliable common
The appellate court modified the trial court's decision and absolved Pioneer from liability carrier which keeps its vessels in seaworthy condition. The shipper of cargo may have no
after finding that there was a breach of implied warranty of seaworthiness on the part of the control over the vessel but he has full control in the choice of the common carrier that will
petitioners and that the loss of the insured cargo was caused by the "perils of the ship" and transport his goods. Or the cargo owner may enter into a contract of insurance which
not by the "perils of the sea". It ruled that the loss is not covered by the marine insurance specifically provides that the insurer answers not only for the perils of the sea but also
policy. provides for coverage of perils of the ship.

Issue: We are constrained to apply Section 113 of the Insurance Code to the facts of this case. As
stated by the private respondents:
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES OF MARINE In marine cases, the risks insured against are "perils of the sea". The purpose of
CARGO INSURANCE, THERE IS A WARRANTY OF SEAWORTHINESS BY THE CARGO OWNER. such insurance is protection against contingencies and against possible damages
and such a policy does not cover a loss or injury which must inevitably take place in
Ruling: the ordinary course of things. There is no doubt that the term 'perils of the sea'
extends only to losses caused by sea damage, or by the violence of the elements,
and does not embrace all losses happening at sea. They insure against losses


from extraordinary occurrences only, such as stress of weather, winds and waves, reason of the condition of this pipe, the ship was not properly equipped to receive the rice at
lightning, tempests, rocks and the like. These are understood to be the "perils of the the time the voyage was begun. For this reason, the court held that the ship was unseaworthy.
sea" referred in the policy, and not those ordinary perils which every vessel must The policy of insurance was signed upon a form long in use among companies engaged in
encounter. "Perils of the sea" has been said to include only such losses as are maritime insurance. It purports to insure the cargo from the following among other risks:
of extraordinary nature, or arise from some overwhelming power, which cannot be "Perils . . . of the seas, men of war, fire, enemies, pirates, rovers, thieves, jettisons, . . . barratry
guarded against by the ordinary exertion of human skill and prudence. of the master and mariners, and of all other perils, losses, and misfortunes that have or shall
come to the hurt, detriment, or damage of the said goods and merchandise or any part
Petitioners maintain, that the loss of the cargo was caused by the perils of the sea, not by the thereof."
perils of the ship because as found by the trial court, the barge was turned loose from the
tugboat east of Cabuli Point "where it was buffeted by storm and waves." Moreover, Issue: Whether or not the insurer is liable for the loss of the cargo in the present case
petitioners also maintain that barratry, against which the cargo was also insured, existed
when the personnel of the tugboat and the barge committed a mistake by turning loose the Ruling:
barge from the tugboat east of Cabuli Point. The trial court also found that the stranding and
foundering of Mable 10 was due to improper loading of the logs as well as to a leak in the NO, THE LOSS OF THE CARGO WAS A RESULT FROM PERIL OF THE SHIP, NOT FROM
barge which constituted negligence. PERIL OF THE SEA AS CONTEMPLATED BY LAW.

On the contention of the petitioners that the trial court found that the loss was occasioned by Meaning of the phrase ‘All other perils, losses, and misfortunes’:
the perils of the sea characterized by the "storm and waves" which buffeted the vessel, the It must be interpreted as covering risks which are of like kind (ejusdem generis) with the
records show that the court ruled otherwise. particular risks which are enumerated in the preceding part of the same clause of the
contract.
In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of defendant carrier
developed a leak which allowed water to come in and that one of the hatches of said barge Lord Macnaghten in Thames and Mersey Marine Insurance Co. vs. Hamilton, Fraser & Co.
was negligently left open by the person in charge thereof causing more water to come in and ([1887]), 12 A. C., 484, 501) – According to the ordinary rules of construction, these words
that "the loss of said plaintiffs' cargo was due to the fault, negligence, and/or lack of skill of must be interpreted with reference to the words which immediately precede them. They were
defendant carrier and/or defendant carrier's representatives on barge Mable 10." no doubt inserted in order to prevent disputes founded on nice distinctions. Their office is to
cover in terms whatever may be within the spirit of the cases previously enumerated, and so
It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than they have a greater or less effect as a narrower or broader view is taken of those cases.
the perils of the sea. The facts clearly negate the petitioners' claim under the insurance policy.
WHEREFORE, the decision appealed from is AFFIRMED with modification It must be considered that a loss which, in the ordinary course of events, results from the
natural and inevitable action of the sea, from the ordinary wear and tear of the ship, or from
the negligent failure of the ship’s owner to provide the vessel with proper equipment to
49. GO TIACO VS UNION INS. SOCIETY OF CANTON 40 PHIL 401 convey the cargo under ordinary conditions, is not a peril of the sea. Such a loss is rather due
to what has been aptly called the "peril of the ship". The insurer undertakes to insure against
The insurer undertakes to insure against perils of the sea and similar perils, not against perils of perils of the sea and similar perils, not against perils of the ship.
the ship.
In the present case the entrance of the sea water into the ship's hold through the defective
Facts: pipe already described was not due to any accident which happened during the voyage, but to
the failure of the ship's owner properly to repair a defect of the existence of which he was
This is an action on a policy of marine insurance issued by the Union Insurance Society of apprised. The loss was therefore more analogous to that which directly results from simple
Canton, Ltd., upon a cargo of rice belonging to the plaintiffs, Go Tiaoco Brothers, which was unseaworthiness than to that which results from perils of the sea.
transported on the steamship Hondagua from the port of Saigon to Cebu. On discharging the
rice from one of the compartments in the after hold, upon arrival at Cebu, it was discovered 50. CATHAY INSURANCE VS CA 151 SCRA 710
that 1473 sacks had been damaged by sea water, amounting to a loss worth P3,875.25.
A cardinal rule in the interpretation of insurance contracts is that any ambiguity therein should
The trial court found that the inflow of the sea water during the voyage was due to a defect in be construed against the maker/issuer/drafter thereof, namely, the insurer.
one of the drain pipes of the ship and concluded that the loss was not covered by the policy of
insurance. Facts:
A complaint was filed by private respondent corporation against petitioner (then defendant)
The court found that the opening described had resulted from ordinary wear and tear in the company seeking collection of the sum of P868,339.15 representing private respondent's
course of time and not from the straining of the ship in rough weather on that voyage. The losses and damages incurred in a shipment of seamless steel pipes under an insurance
court also found that the repairs made on the pipe were slovenly and defective and that, by contract in favor of the said private respondent as the insured, consignee or importer of
aforesaid merchandise while in transit from Japan to the Philippines on board vessel SS


"Eastern Mariner." The total value of the shipment was P2,894,463.83 at the prevailing rate of The court below, after trial on the merits, rendered judgment in favor of private respondent,
P7.95 to a dollar in June and July 1984, when the shipment was made. The trial court decided for the sum of P51,568.62 with interest at legal rate.
in favor of private respondent corporation by ordering petitioner to pay it the sum of
P866,339.15 as its recoverable insured loss equivalent to 30% of the value of the seamless The common carrier, Compagnie, was ordered to pay as a joint debtor.
steel pipes; ordering petitioner to pay private respondent interest on the aforecited amount
at the rate of 34% or double the ceiling prescribed by the Monetary Board per annum from On appeal, the respondent court affirmed the decision of the lower court insofar as the award
February 3, 1982 or 90 days from private respondent's submission of proof of loss to on the complaint is concerned and modified the same with regard to the adjudication of the
petitioner until paid as provided in the settlement of claim provision of the policy; and third-party complaint. A motion for reconsideration of the aforesaid decision was denied. The
ordering petitioner to pay private respondent certain amounts for marine surveyor's fee, AC made Filipino Merchants pay but absolved the common carrier, Compagnie. Hence this
attorney's fees and costs of the suit. petition.

Issue: Issues:

WON the rusting of steel pipes in the course of a voyage is a "peril of the sea" in view of the 1. WON the "all risks" clause of the marine insurance policy held the petitioner liable to the
toll on the cargo of wind, water, and salt conditions. private respondent for the partial loss of the cargo, notwithstanding the clear absence of
proof of some fortuitous event, casualty, or accidental cause to which the loss is attributable.
Ruling: 2. WON the Court of Appeals erred in not holding that the private respondent had no
insurable interest in the subject cargo, hence, the marine insurance policy taken out by
There is no question that the rusting of steel pipes in the course of a voyage is a "peril of the private respondent is null and void.
sea" in view of the toll on the cargo of wind, water, and salt conditions. At any rate if the
insurer cannot be held accountable therefor, We would fail to observe a cardinal rule in the Ruling:
interpretation of contracts, namely, that any ambiguity therein should be construed against
the maker/issuer/drafter thereof, namely, the insurer. Besides the precise purpose of No. No. Petition denied.
insuring cargo during a voyage would be rendered fruitless. Be it noted that any attack of the
15-day clause in the policy was foreclosed right in the pre-trial conference. 1. The "all risks clause" of the Institute Cargo Clauses read as follows:
“5. This insurance is against all risks of loss or damage to the subject-matter insured but shall
in no case be deemed to extend to cover loss, damage, or expense proximately caused by
51. FILIPINO MERCHANTS INSURANCE CO. VS CA 179 SCRA 638 delay or inherent vice or nature of the subject-matter insured. Claims recoverable hereunder
shall be payable irrespective of percentage.“
An "all risks policy" should be read literally as meaning all risks whatsoever and covering all
losses by an accidental cause of any kind. “Accident” is construed by the courts in their ordinary An "all risks policy" should be read literally as meaning all risks whatsoever and covering all
and common acceptance. losses by an accidental cause of any kind. “Accident” is construed by the courts in their
ordinary and common acceptance.
Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest
founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that The very nature of the term "all risks" must be given a broad and comprehensive meaning as
out of which the expectancy arises. covering any loss other than a willful and fraudulent act of the insured. This is pursuant to the
very purpose of an "all risks" insurance to give protection to the insured in those cases where
Facts: difficulties of logical explanation or some mystery surround the loss or damage to property.

Choa insured 600 tons of fishmeal for the sum of P267,653.59 from Bangkok, Thailand to Institute Cargo Clauses extends to all damages/losses suffered by the insured cargo except (a)
Manila against all risks under warehouse to warehouse terms. What was imported in the SS loss or damage or expense proximately caused by delay, and (b) loss or damage or expense
Bougainville was 59.940 metric tons at $395.42 a ton. The cargo was unloaded from the ship proximately caused by the inherent vice or nature of the subject matter insured.
and 227 bags were found to be in bad condition by the arrastre.
Generally, the burden of proof is upon the insured to show that a loss arose from a covered
Choa made a formal claim against the defendant Filipino Merchants Insurance Company for peril, but under an "all risks" policy the burden is not on the insured to prove the precise
P51,568.62 He also presented a claim against the ship, but the defendant Filipino Merchants cause of loss or damage for which it seeks compensation. The insured under an "all risks
Insurance Company refused to pay the claim. The plaintiff brought an action against the insurance policy" has the initial burden of proving that the cargo was in good condition when
company and presented a third party complaint against the vessel and the the policy attached and that the cargo was damaged when unloaded from the vessel. The
arrastre contractor. burden then shifts to the insurer to show the exception to the coverage. This creates a special
type of insurance which extends coverage to risks not usually contemplated and avoids
putting upon the insured the burden of establishing that the loss was due to the peril falling


within the policy's coverage; the insurer can avoid coverage upon demonstrating that a loss sustained by the shipment in one of them may be considered as "constructive total loss"
specific provision expressly excludes the loss from coverage. and correspondingly compensable.

Under an 'all risks' policy, it was sufficient to show that there was damage occasioned by Issue:
some accidental cause of any kind, and there is no necessity to point to any particular cause. Whether or not Oriental Assurance can be held liable under its marine insurance policy based
on the theory of a divisible contract of insurance and, consequently, a constructive total loss.
2. Section 13 of the Insurance Code- anyone has an insurable interest in property who derives
a benefit from its existence or would suffer loss from its destruction. Ruling:

Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest No liability attaches.
founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that The terms of the contract constitute the measure of the insurer liability and compliance
out of which the expectancy arises. therewith is a condition precedent to the insured's right to recovery from the insurer. The
policy in question shows that the subject matter insured was the entire shipment of 2,000
Choa, as vendee/consignee of the goods in transit, has such existing interest as may be the cubic meters of apitong logs. The fact that the logs were loaded on two different barges did
subject of a valid contract of insurance. His interest over the goods is based on the perfected not make the contract several and divisible as to the items insured. The logs on the two barges
contract of sale. The perfected contract of sale between him and the shipper of the goods were not separately valued or separately insured. Only one premium was paid for the entire
operates to vest in him an equitable title even before delivery or before conditions have been shipment, making for only one cause or consideration. The insurance contract must,
performed. therefore, be considered indivisible.

Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, More importantly, the insurer's liability was for "total loss only." A total loss may be either
the seller is authorized or required to send the goods to the buyer, delivery of the goods to a actual or constructive (Sec. 129, Insurance Code). An actual total loss is caused by:
carrier, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to (a) A total destruction of the thing insured;
the buyer. The Court has heretofore ruled that the delivery of the goods on board the carrying (b) The irretrievable loss of the thing by sinking, or by being broken up;
vessels partake of the nature of actual delivery since, from that time, the foreign buyers (c) Any damage to the thing which renders it valueless to the owner for the purpose for which
assumed the risks of loss of the goods and paid the insurance premium covering them. he held it; or
(d) Any other event which effectively deprives the owner of the possession, at the port of
destination, of the thing insured. (Section 130, Insurance Code).
52. ORIENTAL ASSURANCE CORPORATION VS CA 200 SCRA 459 A constructive total loss is one which gives to a person insured a right to abandon, under
Section 139 of the Insurance Code. This provision reads:
Facts: SECTION 139. A person insured by a contract of marine insurance may abandon the thing
insured, or any particular portion thereof separately valued by the policy, or otherwise
Private respondent Panama Sawmill Co., Inc. (Panama) bought, in Palawan, 1,208 pieces of separately insured, and recover for a total loss thereof, when the cause of the loss is a peril
apitong logs, with a total volume of 2,000 cubic meters. It hired Transpacific Towage, Inc., to injured against,
transport the logs by sea to Manila and insured it against loss for P1-M with petitioner (a) If more than three-fourths thereof in value is actually lost, or would have to be expended
Oriental Assurance Corporation (Oriental Assurance). Oriental Assurance issued Marine to recover it from the peril;
Insurance Policy No. OACM 86/002, which stipulated, among others: (b) If it is injured to such an extent as to reduce its value more than three-fourths;
Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the following clauses:
— Civil Code Article 1250 Waiver clause The logs involved, although placed in two barges, were not separately valued by the policy,
— Typhoon warranty clause nor separately insured. Resultantly, the logs lost in 2nd barge in relation to the total number of
— Omnibus clause. logs loaded on the same barge can not be made the basis for determining constructive total
loss. The logs having been insured as one inseparable unit, the correct basis for determining
The logs were loaded on two (2) barges: (1) 610 pieces of logs; and (2) 598 pieces of logs. the existence of constructive total loss is the totality of the shipment of logs. Of the entirety of
During the voyage, rough seas and strong winds caused damage to 2nd Barge resulting in the 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of the entire shipment.
loss of 497 pieces of logs out of the 598 pieces loaded thereon. Since the cost of those 497 pieces does not exceed 75% of the value of all 1,208 pieces of logs,
Panama demanded payment for the loss but Oriental Assurance refuse on the ground that its the shipment can not be said to have sustained a constructive total loss under Section 139(a)
contracted liability was for "TOTAL LOSS ONLY." of the Insurance Code.

RTC and CA Rulings: In the absence of either actual or constructive total loss, there can be no recovery by the
Both Courts held Oriental Assurance liable to indemnify the loss. They shared the view that insured Panama against the insurer, Oriental Assurance.
the insurance contract should be liberally construed in order to avoid a denial of substantial
justice; and that the logs loaded in the two barges should be treated separately such that the


XIII. FIRE INSURANCE Issue: Whether the driver and security guard are employees under the general exception.
XIV. LIFE INSURANCE
Ruling:
XV. CASUALTY INSURANCE
53. (REFER TO CASE #46) MALAYAN INSURANCE CO INC. VS PHILIPPINES FIRST YES. Petition is granted. It should be noted that the insurance policy entered into by the
INSURANCE CO. INC. AND REPUTABLE FORWARDER SERVICES GR 184300 (2012) parties is a theft or robbery insurance policy which is a form of casualty insurance. Section
174 of the Insurance Code provides:
54. FORTUNE INSURANCE AND SURETY COMPANY INC. VS CA GR 115278 (1995)
Sec. 174.Casualty insurance is insurance covering loss or liability arising from accident or

mishap, excluding certain types of loss which by law or custom are considered as falling
Casualty insurance is insurance covering loss or liability arising from accident or mishap,
exclusively within the scope of insurance such as fire or marine. It includes, but is not limited
excluding certain types of loss which by law or custom are considered as falling exclusively
to, employer's liability insurance, public liability insurance, motor vehicle liability insurance,
within the scope of insurance such as fire or marine. It includes, but is not limited to,
plate glass insurance, burglary and theft insurance, personal accident and health insurance as
employer's liability insurance, public liability insurance, motor vehicle liability insurance,
written by non-life insurance companies, and other substantially similar kinds of insurance.
plate glass insurance, burglary and theft insurance, personal accident and health insurance as

written by non-life insurance companies, and other substantially similar kinds of insurance
Except with respect to compulsory motor vehicle liability insurance, the Insurance Code

contains no other provisions applicable to casualty insurance or to robbery insurance in
Facts:
particular. These contracts are, therefore, governed by the general provisions applicable to all

types of insurance. Outside of these, the rights and obligations of the parties must be
Producers Bank of the Philippines insured with Fortune Insurance and Surety Co. P725,000,
determined by the terms of their contract, taking into consideration its purpose and always in
the amount was lost during a robbery of Producer's armored vehicle while it was in transit
accordance with the general principles of insurance law.
from Pasay City City to its Makati head office. The armored car was driven by Benjamin

Magalong Y de Vera, escorted by Security Guard Saturnino Atiga Y Rosete. After an
It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to
investigation conducted by the Pasay police authorities, the driver Magalong and guard Atiga
defraud the insurer — the moral hazard — is so great that insurers have found it necessary to
were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with
fill up their policies with countless restrictions, many designed to reduce this hazard. Seldom
violation of P.D. 532 (Anti-Highway Robbery Law).
does the insurer assume the risk of all losses due to the hazards insured against." Persons

frequently excluded under such provisions are those in the insured's service and
Upon claiming, Fortune refused stating that it is not liable since under the general exceptions
employment. The purpose of the exception is to guard against liability should the theft be
of the policy: ‘any loss caused by any dishonest, fraudulent or criminal act of the insured or
committed by one having unrestricted access to the property. In such cases, the terms
any officer, employee, partner, director, trustee or authorized representative of the Insured
specifying the excluded classes are to be given their meaning as understood in common
whether acting alone or in conjunction with others. . . .’
speech. The terms "service" and "employment" are generally associated with the idea of

selection, control, and compensation.
RTC favored Producers Bank since Driver and Security Guard were merely assigned. CA

affirmed with the conclusion of the trial court that Magalong and Atiga were neither
In the case, there is marked disagreement between the parties on the correct meaning of the
employees nor authorized representatives of Producers.
terms "employee" and "authorized representatives."

According to Fortune, when Producers commissioned a guard and a driver to transfer its
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt
funds from one branch to another, they effectively and necessarily became its authorized
from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of
representatives in the care and custody of the money. Assuming that they could not be
persons granted or having unrestricted access to Producers' money or payroll. When it used
considered authorized representatives, they were, nevertheless, employees of Producers. It
then the term "employee," it must have had in mind any person who qualifies as such as
asserts that the existence of an employer-employee relationship "is determined by law and
generally and universally understood, or jurisprudentially established in the light of the four
being such, it cannot be the subject of agreement." Thus, if there was in reality an employer-
standards in the determination of the employer-employee relationship, or as statutorily
employee relationship between Producers, on the one hand, and Magalong and Atiga, on the
declared even in a limited sense as in the case of Article 106 of the Labor Code which
other, the provisions in the contracts of Producers with PRC Management System for
considers the employees under a "labor-only" contract as employees of the party employing
Magalong and with Unicorn Security Services for Atiga which state that Producers is not their
them and not of the party who supplied them to the employer.
employer and that it is absolved from any liability as an employer, would not obliterate the

relationship.
But even granting for the sake of argument that these contracts were not "labor-only"

contracts, and PRC Management Systems and Unicorn Security Services were truly
On the other hand, Producers contends that Magalong and Atiga were not its employees since
independent contractors, we are satisfied that Magalong and Atiga were, in respect of the
it had nothing to do with their selection and engagement, the payment of their wages, their
transfer of Producer's money from its Pasay City branch to its head office in Makati, its
dismissal, and the control of their conduct.
"authorized representatives" who served as such with its teller Maribeth Alampay.


Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer the The petitioners, for their part, filed a Third-Party Complaint on August 21, 1987 against the
money to its head office, with Alampay to be responsible for its custody in transit; Magalong following:
to drive the armored vehicle which would carry the money; and Atiga to provide the needed respondent Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tiu’s
security for the money, the vehicle, and his two other companions. In short, for these insurer;
particular tasks, the three acted as agents of Producers. A "representative" is defined as one respondent Benjamin Condor, the registered owner of the cargo truck;
who represents or stands in the place of another; one who represents others or another in a and respondent Sergio Pedrano, the driver of the truck.
special capacity, as an agent, and is interchangeable with "agent."
They alleged that petitioner Laspiñas was negotiating the uphill climb along the national
In view of the foregoing, Fortune is exempt from liability under the general exceptions clause highway of Sitio Aggies, Poblacion, Compostela, in a moderate and normal speed. It was
of the insurance policy. further alleged that the truck was parked in a slanted manner, its rear portion almost in the
middle of the highway, and that no early warning device was displayed. Petitioner Laspiñas
55. WILLIAM TIU, ET AL. VS ARRIESGADO, ET AL. GR 138060 (2004) promptly applied the brakes and swerved to the left to avoid hitting the truck head-on, but
despite his efforts to avoid damage to property and physical injuries on the passengers, the
Facts: right side portion of the bus hit the cargo truck’s left rear. The petitioners further alleged,
thus:
At about 10:00 p.m. of March 15, 1987, the cargo truck marked "Condor Hollow Blocks and That the cargo truck is owned and registered in the name of the third-party
General Merchandise" bearing plate number GBP-675 was loaded with firewood in Bogo, defendant Benjamin Condor and was left unattended by its driver Sergio Pedrano,
Cebu and left for Cebu City. one of the third-party defendants, at the time of the incident;

Upon reaching Sitio Aggies, Poblacion, Compostela, Cebu, just as the truck passed over a That third-party defendant Sergio Pedrano, as driver of the cargo truck "Condor
bridge, one of its rear tires exploded. The driver, Sergio Pedrano, then parked along the right Hollow Blocks & General Merchandise," was recklessly and imprudently parked
side of the national highway and removed the damaged tire to have it vulcanized at a nearby along the national highway of Compostela, Cebu during the vehicular accident in
shop, about 700 meters away. question, and third-party defendant Benjamin Condor, as the registered owner of
the cargo truck who failed to exercise due diligence in the selection and
Pedrano left his helper, Jose Mitante, Jr. to keep watch over the stalled vehicle, and instructed supervision of third-party defendant Sergio Pedrano, are jointly and severally
the latter to place a spare tire six fathoms away behind the stalled truck to serve as a warning liable to the third-party plaintiffs for whatever liability that may be adjudged
for oncoming vehicles. The truck’s tail lights were also left on. It was about 12:00 a.m., March against said third-party plaintiffs or are directly liable of (sic) the alleged death of
16, 1987. plaintiff’s wife;

At about 4:45 a.m., D’ Rough Riders passenger bus with plate number PBP-724 driven by Intended to show reckless imprudence on the part of the third-party defendants,
Virgilio Te Laspiñas was cruising along the national highway of Sitio Aggies, Poblacion, the third-party plaintiffs hereby declare that during the vehicular accident in
Compostela, Cebu. The passenger bus was also bound for Cebu City, and had come from Maya, question, third-party defendant was clearly violating Section 34, par. (g) of the
Daanbantayan, Cebu. Among its passengers were the Spouses Pedro A. Arriesgado and Felisa Land Transportation and Traffic Code
Pepito Arriesgado, who were seated at the right side of the bus, about three (3) or four (4)
places from the front seat. That the aforesaid passenger bus, owned and operated by third-party plaintiff
William Tiu, is covered by a common carrier liability insurance with Certificate of
As the bus was approaching the bridge, Laspiñas saw the stalled truck, which was then about Cover issued by Philippine Phoenix Surety and Insurance, Inc., Cebu City Branch, in
25 meters away. He applied the breaks and tried to swerve to the left to avoid hitting the favor of third-party plaintiff William Tiu which covers the period from July 22,
truck. But it was too late; the bus rammed into the truck’s left rear. The impact damaged the 1986 to July 22, 1987 and that the said insurance coverage was valid, binding and
right side of the bus and left several passengers injured. Pedro Arriesgado lost consciousness subsisting during the time of the aforementioned incident
and suffered a fracture in his right colles. His wife, Felisa, was brought to the Danao City
Hospital. She was later transferred to the Southern Island Medical Center where she died That third-party plaintiff notified third-party defendant Philippine Phoenix Surety
shortly thereafter. and Insurance, Inc., of the alleged incident hereto mentioned, but to no avail;
That granting, et arguendo et arguendi, if herein third-party plaintiffs will be
Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage, adversely adjudged, they stand to pay damages sought by the plaintiff and
damages and attorney’s fees before the Regional Trial Court of Cebu City against the therefore could also look up to the Philippine Phoenix Surety and Insurance, Inc.,
petitioners, D’ Rough Riders bus operator William Tiu and his driver, Virgilio Te Laspiñas on for contribution, indemnification and/or reimbursement of any liability or
May 27, 1987. The respondent alleged that the passenger bus in question was cruising at a obligation that they might [be] adjudged per insurance coverage duly entered into
fast and high speed along the national road, and that petitioner Laspiñas did not take by and between third-party plaintiff William Tiu and third-party defendant
precautionary measures to avoid the accident. Philippine Phoenix Surety and Insurance, Inc.;


The respondent PPSII, for its part, admitted that it had an existing contract with petitioner LIABLE TO RESPONDENT PEDRO A. ARRIESGADO OR TO PETITIONERS FOR
Tiu, but averred that it had already attended to and settled the claims of those who were WHATEVER LIABILITY THAT MAY BE ADJUDGED AGAINST THEM.
injured during the incident. It could not accede to the claim of respondent Arriesgado, as such THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONERS GUILTY
claim was way beyond the scheduled indemnity as contained in the contract of insurance. OF NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT PEDRO A. ARRIESGADO.
THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONER WILLIAM
Trial court ruled in favor of respondent Arriesgado. Judgment is hereby rendered in favor of TIU LIABLE FOR EXEMPLARY DAMAGES, ATTORNEY’S FEES AND LITIGATION
plaintiff as against defendant William Tiu ordering the latter to pay the plaintiff EXPENSES.
THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING RESPONDENT
According to the trial court, there was no dispute that petitioner William Tiu was engaged in PHILIPPINE PHOENIX SURETY AND INSURANCE, INC. LIABLE TO RESPONDENT
business as a common carrier, in view of his admission that D’ Rough Rider passenger bus PEDRO A. ARRIESGADO OR TO PETITIONER WILLIAM TIU.
which figured in the accident was owned by him; that he had been engaged in the
transportation business for 25 years with a sole proprietorship; and that he owned 34 buses. Petitioners’ contentions: the appellate court erred in failing to appreciate the absence of an
The trial court ruled that if petitioner Laspiñas had not been driving at a fast pace, he could early warning device and/or built-in reflectors at the front and back of the cargo truck, in
have easily swerved to the left to avoid hitting the truck, thus, averting the unfortunate clear violation of Section 34, par. (g) of the Land Transportation and Traffic Code.
incident. It then concluded that petitioner Laspiñas was negligent.
They aver that such violation is only a proof of respondent Pedrano’s negligence, as provided
The trial court also ruled that the absence of an early warning device near the place where the under Article 2185 of the New Civil Code. They also question the appellate court’s failure to
truck was parked was not sufficient to impute negligence on the part of respondent Pedrano, take into account that the truck was parked in an oblique manner, its rear portion almost at
since the tail lights of the truck were fully on, and the vicinity was well lighted by street the center of the road.
lamps. It also found that the testimony of petitioner Tiu, that he based the selection of his
driver Laspiñas on efficiency and in-service training, and that the latter had been so far an As such, the proximate cause of the incident was the gross recklessness and imprudence of
efficient and good driver for the past six years of his employment, was insufficient to prove respondent Pedrano, creating the presumption of negligence on the part of respondent
that he observed the diligence of a good father of a family in the selection and supervision of Condor in supervising his employees, which presumption was not rebutted. The petitioners
his employees. then contend that respondents Condor and Pedrano should be held jointly and severally liable
to respondent Arriesgado for the payment of the latter’s claim.
Petitioner’s MR – denied.
The petitioners, likewise, aver that expert evidence should have been presented to prove that
Issues: petitioner Laspiñas was driving at a very fast speed, and that the CA could not reach such
conclusion by merely considering the damages on the cargo truck. It was also pointed out that
1. WON defendant-appellant William Tiu had exercised the due diligence of a good father petitioner Tiu presented evidence that he had exercised the diligence of a good father of a
of a family in the selection and supervision of his drivers; family in the selection and supervision of his drivers.
2. WON there is legal and factual basis in awarding excessive moral damages, exemplary
damages, attorney’s fees and litigation expenses to plaintiff-appellee; The petitioners further allege that there is no legal and factual basis to require petitioner Tiu
to pay exemplary damages as no evidence was presented to show that the latter acted in a
Ruling: fraudulent, reckless and oppressive manner, or that he had an active participation in the
negligent act of petitioner Laspiñas.
The appellate court rendered judgment affirming the trial court’s decision with the
modification that the awards for moral and exemplary damages were reduced to P25,000. Finally, the petitioners contend that respondent PPSII admitted in its answer that while it had
According to the appellate court, the action of respondent Arriesgado was based not on quasi- attended to and settled the claims of the other injured passengers, respondent Arriesgado’s
delict but on breach of contract of carriage. As a common carrier, it was incumbent upon claim remained unsettled as it was beyond the scheduled indemnity under the insurance
petitioner Tiu to prove that extraordinary diligence was observed in ensuring the safety of contract. The petitioners argue that said respondent PPSII should have settled the said claim
passengers during transportation. Since the latter failed to do so, he should be held liable for in accordance with the scheduled indemnity instead of just denying the same.
respondent Arriesgado’s claim.
The CA also ruled that no evidence was presented against the respondent PPSII, and as such, Respondent Arriesgado argues that two of the issues raised by the petitioners involved
it could not be held liable for respondent Arriesgado’s claim, nor for contribution, questions of fact, not reviewable by the Supreme Court: the finding of negligence on the part
indemnification and/or reimbursement in case the petitioners were adjudged liable. of the petitioners and their liability to him; and the award of exemplary damages, attorney’s
fees and litigation expenses in his favor. Invoking the principle of equity and justice,
The petitioners now come to this Court and ascribe the following errors committed by the respondent Arriesgado pointed out that if there was an error to be reviewed in the CA
appellate court: decision, it should be geared towards the restoration of the moral and exemplary damages
THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING RESPONDENTS toP50,000 each, or a total of P100,000 which was reduced by the Court of Appeals to P25,000
BENJAMIN CONDOR AND SERGIO PEDRANO GUILTY OF NEGLIGENCE AND HENCE, each, or a total of only P50,000.


Respondent Arriesgado also alleged that respondents Condor and Pedrano, and respondent With its headlights fully on, defendant driver of the Rough Rider was in a vantage position to
Phoenix Surety, are parties with whom he had no contract of carriage, and had no cause of see the cargo truck ahead which was parked and he could just easily have avoided hitting and
action against. It was pointed out that only the petitioners needed to be sued, as driver and bumping the same by maneuvering to the left without hitting the said cargo truck. Besides, it
operator of the ill-fated bus, on account of their failure to bring the Arriesgado Spouses to is (sic) shown that there was still much room or space for the Rough Rider to pass at the left
their place of destination as agreed upon in the contract of carriage, using the utmost lane of the said national highway even if the cargo truck had occupied the entire right lane
diligence of very cautious persons with due regard for all circumstances. thereof.

Respondents Condor and Pedrano point out that, as correctly ruled by the Court of Appeals, It is not true that if the Rough Rider would proceed to pass through the left lane it would fall
the proximate cause of the unfortunate incident was the fast speed at which petitioner into a canal considering that there was much space for it to pass without hitting and bumping
Laspiñas was driving the bus owned by petitioner Tiu. According to the respondents, the the cargo truck at the left lane of said national highway.
allegation that the truck was not equipped with an early warning device could not in any way
have prevented the incident from happening. It was also pointed out that respondent Condor The records, further, showed that there was no incoming vehicle at the opposite lane of the
had always exercised the due diligence required in the selection and supervision of his national highway which would have prevented the Rough Rider from not swerving to its left
employees, and that he was not a party to the contract of carriage between the petitioners and in order to avoid hitting and bumping the parked cargo truck. But the evidence showed that
respondent Arriesgado. the Rough Rider instead of swerving to the still spacious left lane of the national highway
plowed directly into the parked cargo truck hitting the latter at its rear portion; and thus, the
Respondent PPSII alleges that contrary to the allegation of petitioner Tiu, it settled all the (sic) causing damages not only to herein plaintiff but to the cargo truck as well.
claims of those injured in accordance with the insurance contract. It further avers that it did
not deny respondent Arriesgado’s claim, and emphasizes that its liability should be within the Indeed, petitioner Laspiñas’ negligence in driving the bus is apparent in the records. By his
scheduled limits of indemnity under the said contract. The respondent concludes that while it own admission, he had just passed a bridge and was traversing the highway of Compostela,
is true that insurance contracts are contracts of indemnity, the measure of the insurer’s Cebu at a speed of 40 to 50 kilometers per hour before the collision occurred. The maximum
liability is determined by the insured’s compliance with the terms thereof. speed allowed by law on a bridge is only 30 kilometers per hour. And, as correctly pointed out
by the trial court, petitioner Laspiñas also violated Section 35 of the Land Transportation and
The Court’s Ruling: Traffic Code, Republic Act No. 4136, as amended:
At the outset, it must be stressed that this Court is not a trier of facts. Factual findings of the Sec. 35. Restriction as to speed. – (a) Any person driving a motor vehicle on a
Court of Appeals are final and may not be reviewed on appeal by this Court, except when the highway shall drive the same at a careful and prudent speed, not greater nor less
lower court and the CA arrived at diverse factual findings. The petitioners in this case assail than is reasonable and proper, having due regard for the traffic, the width of the
the finding of both the trial and the appellate courts that petitioner Laspiñas was driving at a highway, and or any other condition then and there existing; and no person shall
very fast speed before the bus owned by petitioner Tiu collided with respondent Condor’s drive any motor vehicle upon a highway at such speed as to endanger the life, limb
stalled truck. This is clearly one of fact, not reviewable by the Court in a petition for review and property of any person, nor at a speed greater than will permit him to bring the
under Rule 45. The petition is destined to fail. vehicle to a stop within the assured clear distance ahead.

Petitioner Laspiñas was negligent in driving the Ill-fated bus Under Article 2185 of the Civil Code, a person driving a vehicle is presumed negligent if at the
As found by the Court of Appeals, it is easier to believe that petitioner Laspiñas was driving at time of the mishap, he was violating any traffic regulation.
a very fast speed, since at 4:45 a.m., the hour of the accident, there were no oncoming vehicles
at the opposite direction. Petitioner Laspiñas could have swerved to the left lane with proper Petitioner Tiu failed to overcome the presumption of negligence against him as
clearance, and, thus, could have avoided the truck. Instinct, at the very least, would have one engaged in the business of common carriage
prompted him to apply the breaks to avert the impending disaster which he must have The rules which common carriers should observe as to the safety of their passengers are set
foreseen when he caught sight of the stalled truck. forth in the Civil Code, Articles 1733, 1755 and 1756. In this case, respondent Arriesgado and
his deceased wife contracted with petitioner Tiu, as owner and operator of D’ Rough Riders
A man must use common sense, and exercise due reflection in all his acts; it is his duty to be bus service, for transportation from Maya, Daanbantayan, Cebu, to Cebu City for the price
cautious, careful and prudent, if not from instinct, then through fear of recurring punishment. of P18.00.
He is responsible for such results as anyone might foresee and for acts which no one would
have performed except through culpable abandon. Otherwise, his own person, rights and It is undisputed that the respondent and his wife were not safely transported to the
property, and those of his fellow beings, would ever be exposed to all manner of danger and destination agreed upon. In actions for breach of contract, only the existence of such contract,
injury. and the fact that the obligor, in this case the common carrier, failed to transport his passenger
Court as shown by preponderance of evidence that defendant Virgilio Te Laspiñas failed to safely to his destination are the matters that need to be proved. This is because under the said
observe extraordinary diligence as a driver of the common carrier in this case. It is quite hard contract of carriage, the petitioners assumed the express obligation to transport the
to accept his version of the incident that he did not see at a reasonable distance ahead the respondent and his wife to their destination safely and to observe extraordinary diligence
cargo truck that was parked when the Rough Rider [Bus] just came out of the bridge which is with due regard for all circumstances.
on an (sic) [more] elevated position than the place where the cargo truck was parked.


Any injury suffered by the passengers in the course thereof is immediately attributable to the (g) Lights when parked or disabled. – Appropriate parking lights or flares visible
negligence of the carrier. Upon the happening of the accident, the presumption of negligence one hundred meters away shall be displayed at a corner of the vehicle whenever
at once arises, and it becomes the duty of a common carrier to prove that he observed such vehicle is parked on highways or in places that are not well-lighted or is
extraordinary diligence in the care of his passengers. It must be stressed that in requiring the placed in such manner as to endanger passing traffic.
highest possible degree of diligence from common carriers and in creating a presumption of
negligence against them, the law compels them to curb the recklessness of their drivers. The manner in which the truck was parked clearly endangered oncoming traffic on
both sides, considering that the tire blowout which stalled the truck in the first
It must be shown that the carrier observed the required extraordinary diligence, which means place occurred in the wee hours of the morning. The Court can only now surmise
that the carrier must show the utmost diligence of very cautious persons as far as human care that the unfortunate incident could have been averted had respondent Condor, the
and foresight can provide, or that the accident was caused by fortuitous event. owner of the truck, equipped the said vehicle with lights, flares, or, at the very least,
an early warning device.
As correctly found by the trial court, petitioner Tiu failed to conclusively rebut such
presumption. The negligence of petitioner Laspiñas as driver of the passenger bus is, thus, Hence, we cannot subscribe to respondents Condor and Pedrano’s claim that they
binding against petitioner Tiu, as the owner of the passenger bus engaged as a common should be absolved from liability because, as found by the trial and appellate
carrier. courts, the proximate cause of the collision was the fast speed at which petitioner
Laspiñas drove the bus. To accept this proposition would be to come too close to
The Doctrine of Last Clear Chance Is Inapplicable in the Case at Bar wiping out the fundamental principle of law that a man must respond for the
It only applies in a suit between the owners and drivers of two colliding vehicles. It does not foreseeable consequences of his own negligent act or omission. Indeed, our law on
arise where a passenger demands responsibility from the carrier to enforce its contractual quasi-delicts seeks to reduce the risks and burdens of living in society and to
obligations, for it would be inequitable to exempt the negligent driver and its owner on the allocate them among its members. To accept this proposition would be to weaken
ground that the other driver was likewise guilty of negligence. the very bonds of society.

The common law notion of last clear chance permitted courts to grant recovery to a plaintiff The Liability of Respondent PPSII as Insurer
who has also been negligent provided that the defendant had the last clear chance to avoid The trial court in this case did not rule on the liability of respondent PPSII, while the appellate
the casualty and failed to do so. Accordingly, it is difficult to see what role, if any, the common court ruled that, as no evidence was presented against it, the insurance company is not liable.
law of last clear chance doctrine has to play in a jurisdiction where the common law concept A perusal of the records will show that when the petitioners filed the Third-Party Complaint
of contributory negligence as an absolute bar to recovery by the plaintiff, has itself been against respondent PPSII, they failed to attach a copy of the terms of the insurance contract
rejected, as it has been in Article 2179 of the Civil Code. itself. Only Certificate of Cover issued in favor of "Mr. William Tiu, Lahug, Cebu City" signed by
Cosme H. Boniel was appended to the third-party complaint. The date of issuance, July 22,
Thus, petitioner Tiu cannot escape liability for the death of respondent Arriesgado’s wife due 1986, the period of insurance, from July 22, 1986 to July 22, 1987.
to the negligence of petitioner Laspiñas, his employee, on this score.
In its Answer to the Third-Party Complaint, the respondent PPSII admitted the existence of
Respondents Pedrano and Condor were likewise Negligent the contract of insurance, in view of its failure to specifically deny the same as required under
In this case, both the trial and the appellate courts failed to consider that respondent Pedrano then Section 8(a), Rule 8 of the Rules of Court.
was also negligent in leaving the truck parked askew without any warning lights or reflector
devices to alert oncoming vehicles, and that such failure created the presumption of In fact, respondent PPSII did not dispute the existence of such contract, and admitted that it
negligence on the part of his employer, respondent Condor, in supervising his employees was liable thereon. It claimed, however, that it had attended to and settled the claims of those
properly and adequately. As we ruled in Poblete v. Fabros: injured during the incident, and set up the following as special affirmative defenses:
It is such a firmly established principle, as to have virtually formed part of the law
itself, that the negligence of the employee gives rise to the presumption of Third party defendant Philippine Phoenix Surety and Insurance, Inc. hereby reiterates and
negligence on the part of the employer. This is the presumed negligence in the incorporates by way of reference the preceding paragraphs and further states THAT:
selection and supervision of employee. The theory of presumed negligence, in 8. It has attended to the claims of Vincent Canales, Asuncion Batiancila and Neptali Palces who
contrast with the American doctrine of respondeat superior, where the negligence sustained injuries during the incident in question. In fact, it settled financially their claims per
of the employee is conclusively presumed to be the negligence of the employer, is vouchers duly signed by them and they duly executed Affidavit[s] of Desistance to that effect;
clearly deducible from the last paragraph of Article 2180 of the Civil Code which 9. With respect to the claim of plaintiff, herein answering third party defendant through its
provides that the responsibility therein mentioned shall cease if the employers authorized insurance adjuster attended to said claim. In fact, there were negotiations to that
prove that they observed all the diligence of a good father of a family to prevent effect. Only that it cannot accede to the demand of said claimant considering that the claim
damages. was way beyond the scheduled indemnity as per contract entered into with third party
plaintiff William Tiu and third party defendant (Philippine Phoenix Surety and Insurance,
The petitioners were correct in invoking respondent Pedrano’s failure to observe Article IV, Inc.). Third party Plaintiff William Tiu knew all along the limitation as earlier stated, he being
Section 34(g) of the Rep. Act No. 4136, which provides: an old hand in the transportation business;


Respondent Philippine Phoenix Surety and Insurance, Inc. and petitioner William
Considering the admissions made by respondent PPSII, the existence of the insurance Tiu are ORDERED to pay, jointly and severally, respondent Pedro A. Arriesgado the
contract and the salient terms thereof cannot be dispatched. It must be noted that after filing total amount of P13,113.80;
its answer, respondent PPSII no longer objected to the presentation of evidence by The petitioners and the respondents Benjamin Condor and Sergio Pedrano are
respondent Arriesgado and the insured petitioner Tiu. Even in its Memorandum before the ORDERED to pay, jointly and severally, respondent Pedro A. Arriesgado P50,000.00
Court, respondent PPSII admitted the existence of the contract, but averred as follows: as indemnity; P26,441.50 as actual damages;P50,000.00 as moral
damages; P50,000.00 as exemplary damages; and P20,000.00 as attorney’s fees.
Petitioner Tiu is insisting that PPSII is liable to him for contribution, indemnification and/or
reimbursement. This has no basis under the contract. Under the contract, PPSII will pay all
sums necessary to discharge liability of the insured subject to the limits of liability but not to 56. SUN INSURANCE OFFICE LTD. VS CA GR 92383 (1992)
exceed the limits of liability as so stated in the contract. Also, it is stated in the contract that in
the event of accident involving indemnity to more than one person, the limits of liability shall Facts:
not exceed the aggregate amount so specified by law to all persons to be indemnified.
The petitioner issued personal accident insurance policy to Felix Lim Jr with face value of
As can be gleaned from the Certificate of Cover, such insurance contract was issued pursuant P200,000. Lim died two months later. It was on October 6, 1982, Lim, on a happy mood, was
to the Compulsory Motor Vehicle Liability Insurance Law. It was expressly provided therein playing with his handgun from which he had previously removed the magazine. He pointed
that the limit of the insurer’s liability for each person was P12,000, while the limit per the gun to his secretary who pushes it aside saying that it might be loaded. Lim assured her its
accident was pegged at P50,000. An insurer in an indemnity contract for third party liability is not and pointed to his temple. The next moment there was an explosion and Lim slumped to
directly liable to the injured party up to the extent specified in the agreement but it cannot be the floor. He was dead before he fell. As beneficiary, his wife Nerissa Lim sought payment on
held solidarily liable beyond that amount. the policy but her claim was rejected. The petitioner agreed that there was no suicide. It
argued, however that there was no accident either.
The respondent PPSII could not then just deny petitioner Tiu’s claim; it should have
paid P12,000 for the death of Felisa Arriesgado, and respondent Arriesgado’s hospitalization The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was
expenses of P1,113.80, which the trial court found to have been duly supported by receipts. sustained. The trial court rendered a decision in favor of private respondent.
The total amount of the claims, even when added to that of the other injured passengers
which the respondent PPSII claimed to have settled, would not exceed the P50,000 limit Issues:
under the insurance agreement.
1. Was Lim’s widow eligible to receive the benefits?
Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is such that it is primarily 2. Were the other damages valid?
intended to provide compensation for the death or bodily injuries suffered by innocent third
parties or passengers as a result of the negligent operation and use of motor vehicles. The Ruling:
victims and/or their dependents are assured of immediate financial assistance, regardless of
the financial capacity of motor vehicle owners. 1. YES. There was an accident. ‘

Damages to be Awarded De la Cruz v. Capital Insurance says that "there is no accident when a deliberate act is
The trial court correctly awarded moral damages in the amount of P50,000 in favor of performed unless some additional, unexpected, independent and unforeseen happening
respondent Arriesgado. The award of exemplary damages by way of example or correction of occurs which produces or brings about their injury or death." This was true when he fired the
the public good, is likewise in order. gun.

The respondent Pedro A. Arriesgado, as the surviving spouse and heir of Felisa Arriesgado, is Under the insurance contract, the company wasn’t liable for bodily injury caused by
entitled to indemnity in the amount of P50,000.00. attempted suicide or by one needlessly exposing himself to danger except to save another’s
life.
The petitioners, as well as the respondents Benjamin Condor and Sergio Pedrano are jointly
and severally liable for said amount, conformably with the following pronouncement of the Lim wasn’t thought to needlessly expose himself to danger due to the witness testimony that
Court in Fabre, Jr. vs. Court of Appeals: he took steps to ensure that the gun wasn’t loaded. He even assured his secretary that the gun
The same rule of liability was applied in situations where the negligence of the driver of the was loaded.
bus on which plaintiff was riding concurred with the negligence of a third party who was the
driver of another vehicle, thus causing an accident. There is nothing in the policy that relieves the insurer of the responsibility to pay the
indemnity agreed upon if the insured is shown to have contributed to his own accident.
Petition is PARTIALLY GRANTED. The Decision of the Court of Appeals
is AFFIRMED with MODIFICATIONS: 2. NO “In order that a person may be made liable to the payment of moral damages, the law
requires that his act be wrongful.


the killing was intentional for there was the possibility that the malefactor had fired the shot
The adverse result of an action does not per se make the act wrongful and subject the act or to to scare the people around for his own protection and not necessarily to kill or hit the victim.
the payment of moral damages. The law could not have meant to impose a penalty on the A similar possibility is clearly ruled out by the facts in this case. For while a single shot fired
right to litigate; such right is so precious that moral damages may not be charged on those from a distance, and by a person who was not even seen aiming at the victim, could indeed
who may exercise it erroneously. For these the law taxes costs.” have been fired without intent to kill or injure, nine wounds inflicted with bladed
weapons at close range cannot conceivably be considered as innocent insofar as such
If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses, since it is intent is concerned.
not the fact of winning alone that entitles him to recover such damages of the exceptional
circumstances enumerated in Art. 2208. Otherwise, every time a defendant wins, Under the circumstance, the insurance company was correct in refusing to pay the additional
automatically the plaintiff must pay attorney's fees thereby putting a premium on the right to sum of P5,000.00 under the accidental death benefit clause which expressly provided that it
litigate which should not be so. For those expenses, the law deems the award of costs as would not apply where death resulted from an injury "intentionally" inflicted by a third party.
sufficient.”
XVI. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE
58. (REFER TO CASE #55) TIU VS ARRIESGADO GR 138060 (2004)
57. BIAGTAN VS THE INSULAR LIFE ASSURANCE CO. LTD. 44 SCRA 58

59. PERLA COMPANIA DE SEGUROS INC. VS CA, ET AL. GR 96452 (1992)
Facts:

Juan S. Biagtan was insured with defendant InsularLife Assurance Company for the sum of Facts:
P5,000.00 and, under a supplementary contract denominated "Accidental Death Benefit
Clause, for an additional sum of P5,000.00 if "the death of the Insured resulted directly from Spouses Herminio and Evelyn Lim executed a promissory note in favor of Supercars, Inc.
bodily injury effected solely through external and violent means sustained in an accident ... payable in monthly installments according to the schedule of payment indicated in said note,
and independently of all other causes." The clause, however, expressly provided that it would and secured by a chattel mortgage over a brand new red Ford which is registered under the
not apply where death resulted from an injury "intentionally inflicted by another party." name of Herminio Lim and insured with Perla Compania de Seguros, Inc. (Perla for brevity)
for comprehensive coverage. However, said vehicle was carnapped while parked. Evelyn Lim,
One night, a band of robbers entered their house. Juan went out of his room and he was met who was driving said car before it was carnapped, reported said incident to the Land
with 9 knife stabs and died. The robbers were convicted of robbery with homicide. His family Transportation in compliance with the insurance requirement. The same filed a claim for loss
with Perla.
(Plaintiffs), as beneficiaries of the insured, filed a claim under the policy. The insurance

company paid the basic amount of P5,000.00 but refused to pay the additional sum of
P5,000.00 under the accidental death benefit clause, on the ground that the insured's death Spouses Lim: requested from FCP for a suspension of payment on the monthly amortization
resulted from injuries intentionally inflicted by third parties and therefore was not covered. agreed upon due to the loss of the vehicle and, since the carnapped vehicle was insured with
Perla, the same should be made to pay the remaining balance of the promissory note and the
Issue: chattel mortgage contract.
Perla: Denied such a claim by the spouses on the ground that Evelyn Lim, who was using the
Whether the wounds received by the insured at the hands of the robbers were inflicted vehicle before it was carnapped, was in possession of an expired driver's license at the time of
intentionally. the loss of said vehicle which is in violation of the authorized driver clause of the insurance
policy.
Ruling:
FCP: Demanded that spouses pay the whole balance of the promissory note or to return the
YES. Where a gang of robbers enter a house and coming face to face with the owner, even if vehicle but the latter refused.

unexpectedly, stab him repeatedly, it is contrary to all reason and logic to say that his injuries
Issues:
are not intentionally inflicted, regardless of whether they prove fatal or not. As it was, in the
present case they did prove fatal, and the robbers have been accused and convicted of
1. WON the spouses violated the insurance contract because the authorized driver clause is
the crime of robbery with homicide. The exception in the accidental benefit clause invoked by
the appellant does not speak of the purpose – whether homicidal or not – of a third party in not applicable to the "Theft" clause of said Contract.
causing the injuries, but only of the fact that such injuries have been “intentionally” inflicted – 2. WON Sps. Lim are relieved of their obligation to pay the FCP the installments due on the
this obviously to distinguish them from injuries which, although received at the hands of a promissory note on account of the loss of the automobile.
third party, are purely accidental.
Ruling:
In Calanoc vs. CA: Where a shot was fired and it turned out afterwards that the watchman was
hit in the abdomen, the wound causing his death, the Court held that it could not be said that


1. NO. The comprehensive motor car insurance policy issued by Perla undertook to indemnify Plaintiff was confined at the hospital for a total period of forty (40). During his stay at the
the private respondents against loss or damages to the car (a) by accidental collision or hospital, plaintiff incurred medical expenses in the total amount of P69,444.41. Also, the
overturning, or collision or overturning consequent upon mechanical breakdown or plaintiff incurred lost earning by way of unearned salaries amounting to P7,500 due to said
consequent upon wear and tear; (b) by fire, external explosion, self-ignition or lightning or physical injuries and the consequent hospital confinement.

burglary, housebreaking or theft; and (c) by malicious act. Where a car is admittedly, as in this
Issue: Up to what extent is the insurer’s liability?
case, unlawfully and wrongfully taken without the owner's consent or knowledge, such
taking constitutes theft, and, therefore, it is the "THEFT" clause, and not the "AUTHORIZED Ruling:
DRIVER" clause, that should apply. There is no causal connection between the possession of a
valid driver's license and the loss of a vehicle. To rule otherwise would render car insurance The insurance company clearly passed the maximum limit of the petitioner's liability for
practically a sham since an insurance company can easily escape liability by citing restrictions damages arising from death or bodily injury at P12,000 per passenger and its maximum
liability per accident at P50,000.00. Since only one passenger was injured in the accident, the
which are not applicable or germane to the claim, thereby reducing indemnity to a shadow.
insurer's liability for the damages suffered by said passenger is pegged to the amount of
P12,000 only.
2. NO they are not. The chattel mortgage constituted over the automobile is merely an
accessory contract to the promissory note. Being the principal contract, the promissory note What does the limit of P50,000 per accident mean? It means that the insurer's liability for any
is unaffected by whatever befalls the subject matter of the accessory contract. Therefore, the single accident will not exceed P50,000 regardless of the number of passengers killed or
unpaid balance on the promissory note should be paid, and not just the installments due and injured therein. For example, if ten (10) passengers had been injured by the operation of the
payable before the automobile was carnapped. The insurance policy was meant to be an insured bus, the insurer's liability for the accident would not be P120,000 (at the rate of
additional security to the principal contract, that is, to insure that the promissory note will P12,000 per passenger) but would be limited to only P50,000.00 for the entire accident, as
still be paid in case the automobile is lost through accident or theft. provided in the insurance contract.

It is clear that upon the loss of the insured vehicle, the insurance company Perla undertakes The bus company may not recover from the insurance company (herein petitioner) more than
to pay directly to the mortgagor or to their assignee, FCP, the outstanding balance of the P 12,000.00 per passenger killed or injured, or fifty thousand (P50,000.00) pesos per accident
mortgage at the time of said loss under the mortgage contract. If the claim on the insurance even if under the judgment of the court, the erring bus operator will have to pay more than
policy had been approved by Perla, it would have paid the proceeds thereof directly to P12,000.00 to each injured passenger. The trial court's interpretation of the insurance
petitioner FCP, and this would have had the effect of extinguishing the spouses’ obligation to contract was the correct interpretation.
FCP. Therefore, spouses were justified in asking FCP to demand the unpaid installments from
Perla.
XVII. PRE-NEED PLANS

XVIII. INSURANCE COMMISSION
60. FIRST QUEZON CITY INSURANCE COMPANY INC. VS CA GR 98414 (1993)

Facts:

On June 10, 1984, Plaintiff Jose V. del Rosario proceeded to the loading and unloading zone for
public utility bus stop. As a bus approach the bus stop, it slowed down with all its doors wide
open.

It was taking several passengers, about five or seven of them including the plaintiff, all of
whom managed to board the bus while it was already at the bus stop; plaintiff was the last
one to board the bus.

While the plaintiff was still on the bus' running board with his hand on the bus door's handle
bar, the slowly moving bus sped forward at a high speed, as a result of which, the plaintiff lost
his balance and fell from the bus. As plaintiff clung instinctively to the handle bar, he was
dragged by the bus along the asphalted road for about two (2) seconds.

Thereafter, the plaintiff was brought to the Manila Sanitarium and Hospital where he was
given immediate medical treatment at the emergency ward. The doctors performed a major
surgical operation on plaintiff's right leg.

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